Successful 
Stock   Speculation 


By 

J.  J.  BUTLER 


Written  April  1922 
Published  December  1922 


Published  by 

NATIONAL  BUREAU  OF  FINANCIAL  INFORMATION 
395  Broadway,  New  York  City 


'Shis  {Book  Is  SNj)t  Copyrighted 

We  believe  the  principles  expounded 
in  this  book  are  of  immense  value 
to  everyone  who  buys  speculative 
securities,  and  we  do  not  object  to 
anyone  reproducing  any  part  of  it, 
whether  or  not  we  are  given  credit 
for  it. 

National  Bureau  of  Financial  Information 


CONTENTS 


PART  1 

INTRODUCTORY  CHAPTERS 

Chapter  Page 

I.    THE   PURPOSE  OF  THIS  BOOK    ...  7 

II.    WHAT  Is  SPECULATION 9 

III.  SOME   TERMS   EXPLAINED 13 

IV.  A  CORRECT  BASIS  FOR  SFECULATING  .    .  17 

PART  2 

WHAT  AND  WHEN  TO  BUY  AND  SELL 

V.    WHAT  STOCKS  TO  BUY 23 

VI.    WHAT  STOCKS  NOT  TO  BUY    ....  25 

VII.    WHEN  TO  BUY  STOCKS 29 

VIII.    WHEN  NOT  TO  BUY  STOCKS    ....  33 

IX.    WHEN  TO  SELL  STOCKS 35 

PART  3 

INFLUENCES  AFFECTING   STOCK  PRICES 

X.    MOVEMENTS  IN  STOCK    PRICES    ...  41 

XI.    MAJOR  MOVEMENTS  IN  PRICES    ...  43 

XII.    THE  MONEY  MARKET  AND  STOCK  PRICES  47 

XIII.  MINOR  MOVEMENTS   IN  PRICES    ...  49 

XIV.  TECHNICAL  CONDITIONS 51 

XV.    MANIPULATIONS       53 


688010 


PART  4 

TOPICS  OF  INTEREST  TO  SPECULATORS 

Chapter  Page 

XVI.    MARGINAL  TRADING 61 

XVII.    SHORT    SELLING      ........    65 

XVIII.    BUCKET  SHOPS    .........    69 

XIX.    CHOOSING   YOUR   BROKER 71 

XX.    PUTS  AND  CALLS 73 

XXI.    STOP  Loss  ORDERS 75 

PART   5 

CONCLUDING   CHAPTERS 

XXII.    THE  DESIRE  TO  SPECULATE 81 

XXIII.  Two  KINDS  OF  TRADERS 87 

XXIV.  POSSIBILITIES    OF    PROFIT 91 

XXV.    MARKET  INFORMATION 95 

XXVI.    SUCCESSFUL  SPECULATION 103 


PART  ONE 
INTRODUCTORY  CHAPTERS 


CHAPTER  L 
THE  PURPOSE  OF  THIS  BOOK 

This  book  is  written  for  the  purpose  of 
giving  our  clients  some  ideas  of  the  funda- 
mental principles  that  guide  us  when  we  se- 
lect stocks  for  them  to  buy,  but  these  prin- 
ciples are  valuable  to  every  person  who  trades 
in  listed  stocks  or  in  any  other  kind  of  spec- 
ulative stocks. 

First  of  all,  we  want  you  to  get  a  clear 
conception  of  the  meaning  of  the  word  spec- 
ulation, which  is  explained  in  the  next  chap- 
ter. Our  purpose  is  to  protect  you  against 
losses  as  well  as  to  enable  you  to  make  profits, 
and  it  is  very  important  that  you  understand 
how  to  provide  for  safety  in  your  speculating. 

It  is  a  well  known  fact  that  there  are  tre- 
mendous losses  in  stock  speculation,  but  we 
claim  that  almost  all  of  these  losses  would 
be  avoided  if  all  speculators  were  guided  by 
the  principles  expounded  in  this  book. 

"What"  and  "When"  are  two  very  impor- 
tant words  in  stock  speculation,  and  we  can- 
not urge  upon  you  too  strongly  to  study  care- 
fully Chapters  V.  to  IX. 


8         SUCCESSFUL  STOCK  SPECULATION 

Chapters  X.  to  XV.  tell  you  much  about 
the  influences  that  affect  the  prices  of  stocks, 
a  knowledge  of  which  should  also  be  a  guide 
to  you  in  making  your  selections. 

Perhaps  the  most  important  chapter  in 
the  entire  book  is  XXV.,  on  Market  Informa- 
tion. A  careful  reading  of  this  chapter 
should  convince  you  that  much  of  the  pre- 
vailing information  about  the  stock  market 
is  misleading.  That  fact  alone  accounts  for 
many  of  the  losses  in  stock  speculation. 

It  has  been  our  aim  to  state  all  facts 
briefly.  The  entire  book  is  not  long,  and  it 
will  not  require  much  of  your  time  to  read 
it  through  carefully.  We  are  sure  you  will 
get  many  ideas  from  it  that  will  help  you. 


CHAPTER  II. 
WHAT  IS  SPECULATION? 

To  speculate  is  to  theorize  about  some- 
thing that  is  uncertain.  We  can  speculate 
about  anything  that  is  uncertain,  but  we 
use  the  word  "speculation"  in  this  book  with 
particular  reference  to  the  buying  and  selling 
of  stocks  and  bonds  for  the  purpose  of  mak- 
ing a  profit.  When  people  buy  stocks  and 
bonds  for  the  income  they  get  from  them 
and  the  amount  of  that  income  is  fixed,  they 
are  said  to  invest  and  not  to  speculate.  In 
nearly  all  investments  there  is  also  an  ele- 
ment of  speculation,  because  the  market  price 
of  investments  is  subject  to  change.  "In- 
vestment" also  conveys  the  idea  of  holding 
for  some  time  whatever  you  have  purchased, 
while  speculation  conveys  the  idea  of  selling 
for  a  quick  profit  rather  than  holding  for 
income. 

To  the  minds  of  most  people,  the  word 
"speculation"  conveys  the  thought  of  risk, 
and  many  people  think  it  means  great  risk. 
The  dictionary  gives  for  one  of  the  meanings 
of  speculation,  "a  risky  investment  for  large 


10        SUCCESSFUL  STOCK  SPECULATION 

profit,"  but  speculation  need  not  necessarily 
be  risky  at  all.  The  author  of  this  book  once 
used  the  expression,  "stock  speculating  with 
safety/'  and  he  was  severely  criticized  by  a 
certain  financial  magazine.  Evidently  the 
editor  of  that  magazine  thought  that  "spec- 
ulating" and  "safety"  were  contradictory 
terms,  but  the  expression  is  perfectly  correct. 
Stock  speculating  with  safety  is  possible. 

Of  course,  we  all  know  that  the  word 
"safety"  is  seldom  used  in  an  absolute  sense. 
We  frequently  read  such  expressions  as: 
"The  elevators  in  modern  office  buildings  are 
run  with  safety."  "It  is  possible  to  cross 
the  ocean  with  safety."  "You  can  travel 
from  New  York  to  San  Francisco  in  a  rail- 
road train  with  safety."  And  yet  accidents 
do  occur  and  people  do  lose  their  lives  in 
elevators,  steamships,  and  railroad  trains. 
Because  serious  accidents  are  comparatively 
rare,  we  use  the  word  "safety." 

In  like  manner  it  is  possible  to  purchase 
stocks  sometimes  when  it  is  almost  certain 
that  the  purchaser  will  make  a  profit,  and 
that  is  "stock  speculating  with  safety."  When 
Liberty  Bonds  were  selling  in  the  80's,  many 
people  bought  them  for  speculation.  They 


SUCCESSFUL  STOCK  SPECULATION        1 1 

were  not  taking  any  risk,  except  the  slight 
risk  that  the  market  price  might  go  still 
lower  before  it  would  go  higher,  and  that 
did  not  involve  any  risk  for  those  who  knew 
they  could  hold  them.  The  fact  that  the 
market  prices  of  Liberty  Bonds  would  ad- 
vance was  based  upon  an  economic  law  that 
never  fails.  That  law  is  that  when  interest 
rates  go  up,  the  market  prices  of  bonds  go 
down,  and  when  interest  rates  go  down,  the 
market  prices  of  bonds  go  up.  When  Liberty 
Bonds  were  selling  in  the  80's,  interest  rates 
were  so  very  high,  it  was  certain  that  they 
would  come  down.  That  the  market  prices 
of  Liberty  Bonds  would  go  up  was  also  cer- 
tain, but  nobody  could  tell  how  much  they 
would  go  up  in  a  given  time.  It  was  that 
element  of  uncertainty  that  made  them  spec- 
ulative, and  not  that  there  was  any  doubt 
about  the  fact  that  the  market  prices  of 
them  would  go  up.  Buying  Liberty  Bonds 
at  that  time  was  speculating  with  safety. 
If  you  read  this  book  with  understanding, 
you  will  know  much  about  speculating  with 
safety. 


CHAPTER  III. 
SOME  TERMS  EXPLAINED 

There  are  certain  terms  used  in  connec- 
tion with  stock  speculation  that  are  very  fa- 
miliar to  those  who  come  in  contact  with 
stock  brokers,  and  yet  are  not  always  famil- 
iar to  those  who  do  business  by  mail.  Un- 
doubtedly the  majority  of  our  readers  are 
familiar  with  these  terms,  but  we  give  these 
definitions  for  the  benefit  of  the  few  who 
are  not  familiar  with  them. 

Trader:  A  person  who  buys  and  sells 
stocks  is  usually  referred  to  as  a  trader.  The 
word  probably  originated  when  it  was  cus- 
tomary to  trade  one  stock  for  another  and 
later  was  used  to  refer  to  a  person  who  sold 
one  stock  and  bought  another.  He  was  a 
trader;  but  the  person  who  buys  stocks  for 
a  profit  and  sells  them  and  takes  his  profit 
when  he  gets  an  opportunity,  may  not  be  a 
trader  in  the  strict  sense  of  the  word.  How- 
ever, for  convenience,  we  use  the  word 
"trader"  in  this  book  to  refer  to  any  one  who 
buys  or  sells  stocks. 


14        SUCCESSFUL  STOCK  SPECULATION 

Speculator:  This  word  refers  to  a  person 
who  buys  stocks  for  profit,  with  the  expec- 
tation of  selling  at  a  higher  price,  without 
reference  to  the  earnings  of  the  stock.  He 
may  sell  first,  with  the  expectation  of  buying 
at  a  lower  price,  as  explained  in  Chapter 
XVII.  on  "Short  Selling."  In  many  cases 
where  we  use  the  word  "trader,"  it  would 
be  more  correct  to  use  the  word  "speculator." 

Investor:  An  investor  differs  from  a  spec- 
ulator in  the  fact  that  he  buys  stocks  or 
bonds  with  the  expectation  of  holding  them 
for  some  time  for  the  income  to  be  derived 
from  them,  without  reference  to  their  spec- 
ulative possibilities.  We  believe  that  invest- 
ors always  should  give  some  consideration  to 
the  speculative  possibilities  of  their  pur- 
chases. It  frequently  is  possible  to  get  spec- 
ulative profits  without  increase  of  risk  or 
loss  of  income. 

Bull:  One  who  believes  that  the  market 
price  of  stocks  will  advance  is  called  a  bull. 
Of  course,  it  is  possible  to  be  a  bull  in  one 
stock  and  a  bear  in  another.  The  word  is 
used  very  frequently  with  reference  to  the 
market,  a  bull  market  meaning  a  rising 
market. 


SUCCESSFUL  STOCK  SPECULATION        15 

Bear:  The  opposite  of  a  bull  is  a  bear. 
It  refers  to  a  person  who  believes  that  the 
market  value  of  stocks  will  decline,  and  a 
bear  market  is  a  declining  market. 

Lambs:  "Lambs"  refers  to  that  part  of 
the  public  that  knows  so  little  about  stock 
speculating  that  they  lose  all  their  money 
sooner  or  later.  The  bulls  and  bears  get 
them  going  and  coming.  If  the  lambs  would 
read  this  book  carefully,  they  would  discover 
reasons  why  they  lose  their  money. 

Long  and  Short:  Those  who  own  stocks 
are  said  to  be  long,  and  those  who  owe  stocks 
are  said  to  be  short.  Short  selling  is  ex- 
plained in  Chapter  XVII. 

Odd  Lot:  Stocks  on  exchanges  are  sold 
in  certain  lots.  On  the  New  York  Stock  Ex- 
change, 100  shares  is  a  lot;  and  on  the  Con- 
solidated Stock  Exchange,  10  shares  is  a  lot. 
Less  than  these  amounts  is  an  odd  lot.  When 
you  sell  an  odd  lot  you  usually  get  1/8  IGSS 
than  the  market  price ;  and  when  you  buy  an 
odd  lot,  you  usually  pay  %  more  than  the 
market  price;  that  is,  1/8  of  a  dollar  on  each 
share  where  prices  are  quoted  in  dollars. 

Point:  It  is  a  common  expression  to  say 
that  a  stock  went  up  or  down  a  point,  which 


16        SUCCESSFUL  STOCK  SPECULATION 

means  a  dollar  in  a  stock  that  is  quoted  in 
dollars,  but  a  cent  in  a  stock  that  is  quoted  in 
cents,  as  many  of  the  stocks  are  on  the  New 
York  Curb.  In  cotton  quotations,  a  point  is 
1-100  part  of  a  cent.  For  instance,  if  cotton 
is  quoted  at  18.12,  it  means  18  cents  and 
12-100  of  a  cent  per  pound,  and  if  it  went 
up  30  points  the  quotation  would  be  18.42. 

Reaction:  Every  person  who  has  traded 
in  listed  stocks  probably  is  familiar  with  this 
word.  It  means  to  act  in  an  opposite  direc- 
tion, but  it  is  used  especially  to  refer  to  a 
decline  in  the  price  of  a  stock  that  has  been 
going  up. 

Rally :  "Rally"  is  the  opposite  of  the  sense 
in  which  "reaction"  usually  is  used.  When 
a  stock  is  going  down  and  it  turns  and  goes 
up,  it  is  called  a  rally. 

Commitment:  This  term  is  used  refer- 
ring to  a  purchase  of  stock.  It  is  more  com- 
monly used  by  investment  bankers  when  they 
contract  to  buy  an  issue,  but  the  term  some- 
times is  used  by  traders. 

Floating  Supply :  The  stock  of  a  company 
that  is  in  the  hands  of  that  part  of  the  public 
who  is  likely  to  sell,  is  referred  to  as  floating 
supply. 


CHAPTER  IV. 
A  CORRECT  BASIS  FOR  SPECULATING 

We  maintain  that  there  is  only  one  basis 
upon  which  successful  speculation  can  be  car- 
ried on  continually;  that  is,  never  to  buy  a 
security  unless  it  is  selling  at  a  price  below 
that  which  is  warranted  by  assets,  earning 
power,  and  prospective  future  earning  power. 

There  are  many  influences  that  affect  the 
movements  of  stock  prices,  which  are  re- 
ferred to  in  subsequent  chapters.  All  of  these 
should  be  studied  and  understood,  but  they 
should  be  used  as  secondary  factors  in  rela- 
tion to  the  value  of  the  stock  in  which  you 
are  trading. 

If  the  market  price  of  any  stock  is  far  be- 
low its  intrinsic  value  and  there  is  no  reason 
why  the  future  should  bring  about  a  change 
in  this  value  that  will  decrease  it,  then  you 
may  be  certain  that  important  influences  are 
working  against  the  market  price  of  the  stock 
for  the  time  being.  In  the  course  of  time  the 
market  price  will  go  up  towards  the  real 
value.  This  matter  will  be  more  fully  ex- 
plained in  subsequent  chapters. 


18        SUCCESSFUL  STOCK  SPECULATION 

You  always  should  keep  in  mind  the  fact 
that  when  you  buy  a  stock  at  a  higher  price 
than  its  intrinsic  value,  you  are  taking  a 
risk.  The  stock  may  have  great  future  pos- 
sibilities, but  it  is  risky  to  buy  stocks  when 
present  assets  and  earnings  do  not  warrant 
their  market  prices,  no  matter  how  attrac- 
tive prospective  future  earnings  may  appear. 
However,  the  possibilities  of  profit  sometimes 
are  so  great  that  one  is  justified  in  taking 
this  risk. 

It  is  our  belief  that  the  majority  of  traders 
buy  stocks  because  they  are  active  in  the 
market  and  somebody  said  they  were  a  good 
buy,  even  though  the  real  values  may  not 
be  nearly  as  much  as  the  market  prices. 

As  an  example  of  this  kind  of  trading,  we 
want  to  call  your  attention  to  a  news  item 
that  appeared  in  a  New  York  paper.  It  stated 
that  on  April  1st,  some  brokers  in  Detroit, 
as  an  April  Fool  joke,  gave  out  a  tip  to  buy 
A.  F.  P.,  meaning  April  Fool  Preferred,  but 
when  asked  what  it  meant,  replied  "Amer- 
ican Fire  Protection."  Of  course,  there  was 
no  such  stock,  but  there  was  active  trading 
in  it  until  the  joke  was  discovered.  Evi- 
dently it  is  not  necessary  to  list  a  stock  on 


SUCCESSFUL  STOCK  SPECULATION        19 

the  Detroit  Stock  Exchange  in  order  to  trade 
in  it. 

This  story  may  or  may  not  be  true,  but 
we  believe  the  statement  that  people  trade 
in  stocks  they  do  not  know  anything  about 
is  true.  You  should  be  careful  not  to  buy 
a  stock  merely  because  somebody  says  it 
is  a  good  thing  to  buy,  unless  the  person 
making  the  statement  is  in  the  business  of 
giving  information  on  stocks,  because  it  may 
be  only  a  rumor  with  no  substantial  basis. 
Of  course,  if  many  people  act  on  the  rumor, 
there  will  be  active  trading  in  the  stock,  and 
it  is  frequently  for  that  purpose  that  such 
rumors  are  started. 


PART  TWO 

WHAT  and  WHEN  TO  BUY 
and  SELL 


CHAPTER  V. 
WHAT  STOCKS  TO  BUY 

In  deciding  what  stocks  to  buy,  it  is  well 
to  consider  first  the  classes  of  stocks,  and 
then  what  particular  stocks  you  should  buy 
in  the  classes  you  select.  We  would  first  of 
all  divide  all  stocks  into  two  classes,  those 
listed  on  the  New  York  Stock  Exchange  and 
those  not  listed  on  the  New  York  Stock  Ex- 
change. As  a  rule,  it  is  better  to  buy  stocks 
listed  on  the  New  York  Stock  Exchange,  al- 
though there  are  frequent  exceptions  to  this 
rule. 

Then,  the  stocks  listed  on  the  New  York 
Stock  Exchange  may  be  divided  into  classes, 
such  as  railroad  stocks,  public  utility  stocks, 
motor  stocks,  tire  stocks,  oil  stocks,  copper 
stocks,  gold  stocks,  and  so  forth.  At  certain 
times  certain  stocks  are  in  a  much  more  fav- 
orable condition  than  at  other  times.  In 
1919,  when  the  industrial  stocks  were  selling 
at  a  very  high  price,  the  public  utility  stocks 
and  gold  stocks  were  selling  low,  because  it 
was  impossible  to  increase  incomes  in  pro- 
portion to  the  increase  in  operating  costs. 


24       SUCCESSFUL  STOCK  SPECULATION 


Hut  .since  the  betfirmiriK  Of  1921,  the  condi- 
tion of  these  two  classes  of  stocks  has  been 
improving  and  the  market  has  reflected  that 
improvement. 

At  the  time  of  this  writing  (early  in  April, 
1922)  we  are  recommending  the  stocks  of 
only  a  very  few  manufacturing  companies; 
but  we  are  recommending  a  number  (not  all) 
of  the  railroad  and  public  utility  stocks,  and 
a  few  specially  selected  stocks  among  the 
other  classes. 

In  every  instance,  when  you  make  a  selec- 
tion, you  should  consider  the  company's  as- 
sets, present  earnings,  and  prospective  fu- 
ture earnings,  and  then  take  into  considera- 
tion all  the  influences  that  affect  price  move- 
ments, as  explained  in  subsequent  Chapters. 


CHAPTER  VI. 
WHAT  STOCKS  NOT  TO  BUY 

A  great  deal  more  can  be  said  about  stocks 
you  should  not  buy  than  about  stocks  you 
should  buy,  because  the  list  is  very  much 
larger. 

Stocks  not  listed  on  the  New  York  Stock 
Exchange,  as  a  rule,  should  not  be  bought 
by  a  careful  speculator,  but  as  stated  in  the 
previous  chapter,  there  are  exceptions  to  that 
rule.  Billions  of  dollars  have  been  lost  in 
the  past  by  buying  stocks  that  have  become 
worthless.  A  few  years  ago  a  list  of  de- 
funct securities  was  compiled,  and  it  took 
two  large  volumes  in  which  to  enumerate 
them.  New  ones  have  been  added  to  them 
every  year.  Therefore,  it  is  very  important 
that  you  should  give  careful  thought  to  the 
subject  of  what  stocks  not  to  buy. 

Nearly  all  promotion  stocks  (stocks  in  new 
companies)  are  a  failure.  An  extremely 
email  percentage  of  them  are  very  success- 
ful, and  the  successful  ones  are  referred  to 
in  the  advertising  of  the  new  ones;  but,  on 
the  basis  of  average,  the  chances  are  you  will 


26        SUCCESSFUL  STOCK  SPECULATION 

lose  your  money  entirely  in  promotion  stocks. 
We  believe  that  most  of  the  promotion  com- 
panies are  started  in  perfectly  good  faith, 
although  some  of  them  are  swindles  from  the 
beginning;  but  no  matter  how  honest  and 
well  meaning  the  organizers  are,  the  chances 
of  success  are  against  them.  Therefore,  we 
say  that  promotion  stocks  should  not  be 
bought  by  the  ordinary  man  who  is  looking 
for  a  good  speculation,  because  his  chances 
of  making  a  large  profit  with  a  minimum 
risk  are  very  much  better  when  he  buys 
stocks  listed  on  the  New  York  Stock  Ex- 
change and  uses  good  judgment  in  doing  so. 

Among  the  listed  stocks  there  are  many 
you  should  not  buy.  First  of  all,  eliminate 
them  by  classes.  Do  not  buy  the  classes  of 
stocks  that  are  selling  too  high  now.  You 
may  say  that  there  are  some  exceptions  in 
all  classes.  That  may  or  may  not  be  so,  but 
in  any  event,  you  have  a  better  chance  of 
profiting  by  confining  most  of  your  purchases 
to  the  classes  of  stocks  that  are  in  the  most 
favorable  position. 

As  a  rule,  when  stocks  are  first  listed,  they 
sell  much  higher  than  they  do  a  short  time 
afterwards.  Of  course,  that  is  not  always 


SUCCESSFUL  STOCK  SPECULATION       27 

true.  It  is  more  likely  to  be  true  when  a 
stock  is  listed  during  a  very  active  market, 
when  prices  are  more  easily  influenced  by 
publicity.  The  high  price  of  it  is  usually 
due  to  the  fact  that  publicity  is  given  to  it, 
and  as  soon  as  the  effect  of  this  publicity 
wears  off,  the  market  price  of  the  stock  de- 
clines. 

It  is  a  good  rule  never  to  buy  stocks  that 
brokers  urge  you  to  buy.  Your  own  common 
sense  ought  to  tell  you  that  a  stock  that  is 
advertised  extensively  by  brokers  is  likely 
to  sell  up  in  price  while  the  advertising  is 
going  on  and  will  drop  in  price  just  as  soon 
as  the  advertising  stops. 

Many  people  notice  that  and  they  think 
they  can  profit  by  buying  when  the  advertis- 
ing starts  and  sell  out  when  they  get  a  good 
profit,  but  the  majority  of  them  lose  money. 
The  stock  may  not  respond  to  the  advertising, 
or  if  it  does  go  up,  they  may  wait  too  long 
before  selling.  Those  who  do  sell  and 
make  200%  or  300%  profit  in  a  very  short 
time  are  almost  sure  to  lose  it  all  in  an  effort 
to  repeat  the  transaction.  Many  of  those 
who  read  this  know  it  is  true  from  their  own 
experience. 


28        SUCCESSFUL  STOCK  SPECULATION 

You  should  leave  such  stocks  strictly  alone. 
You  may  win  once  or  twice,  but  you  are  sure 
to  lose  if  you  keep  it  up.  As  a  rule  stocks 
of  this  kind  have  very  little  value  and  the 
brokers  who  boost  them  make  their  own 
money  from  the  losses  of  their  foolish  fol- 
lowers. 


CHAPTER  VII. 
WHEN  TO  BUY  STOCKS 

Stocks  should  be  bought  when  they  are 
cheap.  By  being  cheap,  we  mean  that  the 
market  price  is  much  less  than  the  intrinsic 
value.  In  Chapters  X.  to  XV.  we  talk  about 
influences  that  affect  the  price  movements 
of  stocks.  By  studying  these  carefully  you 
should  be  able  to  decide  when  stocks  gen- 
erally are  cheap.  Of  course,  not  all  stocks 
are  cheap  at  the  same  time,  but  the  majority 
of  listed  stocks  do  go  up  and  down  at  the 
same  time,  as  a  rule. 

At  the  time  of  this  writing  (in  the  early 
part  of  April,  1922)  there  are  a  great  many 
stocks  listed  on  the  New  York  Stock  Ex- 
change that  are  selling  at  prices  much  less 
than  their  intrinsic  values,  but  there  are  some 
stocks  that  should  not  be  bought  now,  nor 
at  any  other  time.  There  are  some  stocks 
listed  on  the  New  York  Stock  Exchange  now 
that  perhaps  have  no  intrinsic  value  and 
never  will  have  any.  Nevertheless  we  con- 


30        SUCCESSFUL  STOCK  SPECULATION 

sider  that  right  now*  is  one  of  the  times  for 
buying  stocks.  There  are  unusual  bargains 
to  be  had,  although  keen  discrimination  is 
necessary  in  order  to  be  able  to  pick  out  the 
bargains. 

As  a  usual  thing,  it  is  a  good  time  to  buy 
stocks  when  nearly  everybody  wants  to  sell 
them.  When  general  business  conditions  are 
bad,  trading  on  the  stock  exchanges  very 
light,  and  everybody  you  meet  appears  to  be 
pessimistic,  then  we  advise  you  to  look  for 
bargains  in  stocks.  The  last  six  months  of 
1921  was  an  unusually  good  time  for  buying 
stocks. 

It  is  well  known  that  the  large  interests 
accumulate  stocks  at  such  times.  They  buy 
only  when  the  stocks  are  offered  at  a  low 
price  and  try  not  to  buy  enough  at  any  one 
time  to  give  an  appearance  of  activity  in 
the  market,  but  they  buy  continually  when 
the  market  is  very  dull.  It  seems  to  be  char- 
acteristic of  human  nature  to  think  that  bus- 
iness conditions  are  going  to  continue  just 
as  they  are.  When  business  is  bad,  nearly 


*In  our  advisory  Letter  of  April  25,  1922,  we  advised  our 
clients  to  refrain  from  margin  buying  for  a  while,  because  the 
market  was  advancing  too  rapidly.  Shortly  after  that  there 
v/as  a  decided  reaction  in  the  market. 


SUCCESSFUL  STOCK  SPECULATION        31 

everybody  thinks  business  will  be  bad  for  a 
long  time,  and  when  business  is  good,  nearly 
everybody  thinks  business  will  be  good  al- 
most indefinitely.  As  a  matter  of  fact,  con- 
ditions are  always  changing.  It  never  is  pos- 
sible for  either  extremely  good  times  nor  for 
extremely  bad  times  to  continue  indefinitely. 
You  can  buy  stocks  cheaper  when  there  is 
very  little  demand  for  them,  and  you  should 
arrange  your  affairs  so  as  to  be  prepared  to 
buy  at  such  times. 


CHAPTER  VIII. 
WHEN  NOT  TO  BUY  STOCKS 

There  are  times  when  stocks  should  not 
be  bought,  and  that  is  when  nearly  all  stocks 
have  advanced  beyond  their  real  values.  It 
is  doubtful  if  there  ever  is  a  time  when  all 
stocks  have  advanced  beyond  their  real  val- 
ues, but  when  the  great  majority  of  stocks 
have  so  advanced,  there  is  likely  to  be  a  gen- 
eral decline  in  all  stock  prices.  The  stocks 
that  are  not  selling  too  high  will  decline  some 
in  sympathy  with  the  others.  Therefore, 
there  are  times  when  we  advise  our  clients 
not  to  buy  any  stocks. 

Some  organizations  giving  advice  in  regard 
to  the  buying  of  stocks,  advise  their  clients 
to  refrain  entirely  from  buying  for  periods 
of  a  year  or  longer,  but  we  think  it  is  seldom 
advisable  to  refrain  entirely  from  buying  for 
any  great  length  of  time.  There  usually  are 
some  good  opportunities  if  you  watch  care- 
fully for  them.  It  is  our  business  to  watch 
for  these  opportunities  and  tell  our  clients 
about  them. 


34        SUCCESSFUL  STOCK  SPECULATION 

There  are  also  times  when  the  technical 
condition  of  the  market  is  such  that  we  ad- 
vise our  clients  to  refrain  from  buying  for 
a  while.  See  Chapter  XIV. 


CHAPTER  IX. 
WHEN  TO  SELL  STOCKS 

You  should  sell  stocks  when  the  market 
price  is  too  high.  That  is  a  general  rule,  but 
it  is  necessary  for  you  to  study  all  the  in- 
fluences affecting  stock  prices  to  be  able  to 
decide  more  accurately  when  you  should  sell 
your  stocks.  We  give  you,  in  future  chap- 
ters, much  more  information  on  judging  the 
markets. 

Another  general  rule,  is  to  sell  stocks  when 
nearly  everybody  is  buying  them.  It  is  a 
well  known  fact  that  the  great  majority  of 
people  buy  stocks  near  the  top  and  sell  near 
the  bottom.  Naturally  when  everybody  is 
optimistic,  stocks  will  sell  up  high,  but  sooner 
or  later  they  will  come  down  again,  and  when 
everything  looks  very  promising  is  a  good 
time  to  sell.  It  is  better  to  lose  a  little  of  the 
profit  that  you  might  have  made  by  holding 
on  longer  than  not  to  be  on  the  safe  side. 
The  man  who  trys  to  sell  at  the  top  nearly 
always  loses,  because  stocks  seldom  sell  as 
high  as  it  is  predicted  they  will,  or,  in  other 


36        SUCCESSFUL  STOCK  SPECULATION 

words,  the  prediction  of  higher  prices  is  ad- 
vanced more  rapidly  than  the  prices. 

We  remember  reading  in  1916,  when  U.  S. 
Steel  sold  up  around  $136  a  share,  a  predic- 
tion that  it  was  going  to  sell  up  to  $1000  a 
share.  Probably  many  people  who  read  such 
news  items  consider  them  seriously.  Of 
course,  that  was  a  most  exaggerated  predic- 
tion, but  during  the  extreme  activity  of  a 
bull  market,  it  seems  that  nearly  everybody 
is  talking  in  exaggerated  terms  of  optimism. 
That  is  why  most  traders  seldom  ever  take 
their  profits  in  a  bull  market.  They  wait 
until  stock  prices  start  to  come  down,  and 
then  they  are  likely  to  think  there  will  be 
rallies,  and  keep  on  waiting  until  they  lose 
all  their  profits. 

On  the  other  hand,  some  people  make  the 
mistake  of  selling  too  soon.  Just  because 
your  purchase  shows  a  liberal  profit  is  no 
reason  why  you  should  sell.  The  stock  may 
have  been  very  cheap  when  you  bought  it. 
In  1920,  Peoples  Gas  sold  below  $30.  Those 
who  bought  it  then  were  able  to  double  their 
money  by  the  close  of  1921,  and  many  sold 
out  and  took  their  profits.  Of  course,  if  they 
invested  the  proceeds  in  other  stocks  that 


SUCCESSFUL  STOCK  SPECULATION        37 

were  just  starting  upward,  they  may  not 
have  lost  anything,  but  there  was  no  partic- 
ular reason  for  selling  Peoples  Gas  at  that 
time.  The  public  utilities  generally  were 
coming  into  their  own,  and  nearly  all  of  them 
were  regarded  by  economic  students  as  hav- 
ing unusual  opportunities  for  profit. 

Then  again,  it  is  not  always  a  mistake  to 
sell  a  stock  in  order  to  get  funds  to  put  into 
something  else  that  seems  more  promising, 
even  though  the  stock  you  sell  is  likely  to 
go  much  higher. 

It  is  very  important  that  you  should  try 
to  sell  your  stocks  at  the  right  time.  That 
is  the  main  thing  to  keep  in  mind  and  it  is 
better  to  sell  too  soon  than  too  late.  Don't 
be  too  greedy  and  hold  on  for  a  big  profit. 
Read  Chapter  XXIV.  on  the  "Possibilities 
of  Profit." 


PART  THREE 

INFLUENCES  AFFECTING 
STOCK  PRICES 


CHAPTER  X. 
MOVEMENTS  IN  STOCK  PRICES 

It  is  due  to  the  fact  that  stock  prices  con- 
stantly move  up  or  down  that  speculation  is 
possible.  Sometimes  certain  stocks  remain 
almost  at  a  standstill  for  a  long  period  of 
time,  but  at  least  a  part  of  the  stocks  listed 
on  the  Exchanges  move  either  up  or  down. 
If  one  always  could  tell  just  what  way  they 
were  going  to  move,  it  would  be  compara- 
tively easy  to  make  a  fortune  within  a  short 
time. 

In  the  last  twenty  years,  a  great  deal  of 
time  and  money  has  been  spent  by  statistical 
organizations  in  checking  up  statistics  for 
the  purpose  of  ascertaining  a  definite  basis 
upon  which  to  predict  future  movements  in 
stock  prices.  Several  of  these  organizations 
use  very  different  statistics  upon  which  to 
base  their  conclusions,  and  yet  their  conclu- 
sions are  very  similar.  They  have  proved 
beyond  any  question  of  doubt  that  some  of 
these  movements  are  clearly  indicated  by 
laws  that  never  fail. 


42       SUCCESSFUL  STOCK  SPECULATION 

We  do  not  attempt  in  this  book  to  explain 
the  fundamental  statistics  upon  which  the 
predictions  of  business  cycles  are  based,  but 
in  the  next  five  chapters  we  explain  some 
of  the  influences  that  affect  the  movements 
in  stock  prices.  Read  these  chapters  very 
carefully,  for  your  success  in  stock  specu- 
lation will  depend  very  largely  upon  your 
correct  prediction  of  these  movements. 


CHAPTER  XL 
MAJOR  MOVEMENTS  IN  PRICES 

Stock  prices  move  up  and  down  in  cycles. 
These  are  the  major  movements  in  prices, 
but  there  may  be  many  minor  movements  up 
and  down  within  the  major  movements.  These 
stock  price  movements  nearly  always  pre- 
cede a  change  in  business  conditions;  that 
is,  an  upward  movement  in  stock  prices  is 
an  indication  that  business  conditions  are 
going  to  improve,  and  a  downward  move- 
ment in  stock  prices  is  an  indication  that 
business  conditions  are  going  to  get  worse. 

At  the  present  writing,  we  are  in  a  period 
of  improvement.  Stock  prices  began  to  go 
up  in  August,  1921.  The  upward  movement 
has  been  slow,  but  gradual.  In  a  period  of 
seven  months,  forty  representative  stocks 
show  an  upward  movement  of  about  20 
points,  although  business  has  not  shown 
much  improvement.  A  steady  upward  move- 
ment in  stock  prices  is  a  sure  sign  that  bus- 
iness conditions  are  beginning  to  improve, 
even  though  that  improvement  is  not 
noticeable. 


44        SUCCESSFUL  STOCK  SPECULATION 

These  major  stock  movements  are  not  an 
exact  duplicate  of  any  previous  ones,  and  it 
is  impossible  to  tell  how  long  they  will  last 
or  just  what  course  they  will  take.  Certain 
influences  could  change  a  period  of  improve- 
ment into  a  period  of  prosperity  very  quickly. 

A  period  of  prosperity  is  noted  for  high 
prices,  high  wages,  and  increasing  produc- 
tion in  all  lines.  Everybody  is  optimistic. 
Most  people  spend  their  money  freely,  and 
that  makes  times  better.  As  prices  go  up 
and  business  increases,  more  money  is  re- 
quired in  business  and  interest  rates  go  up. 
As  a  consequence,  when  interest  rates  go  up, 
bond  prices  go  down.  During  this  period, 
speculative  stocks  are  selling  at  their  highest 
prices;  and  under  the  influence  of  this  move- 
ment, many  stocks  that  have  no  actual  value 
sell  up  at  high  prices.  Of  course,  wise  spec- 
ulators sell  all  their  stocks  during  this  period. 

Following  a  period  of  prosperity  comes  a 
period  of  decline.  The  first  sign  of  it  usually 
is  a  severe  break  in  the  stock  market.  At 
that  time  general  business  is  running  along 
at  top  speed  and  there  is  no  sign  of  a  let-up, 
but  this  break  in  the  stock  market  should 
be  a  warning.  Most  people  think  the  break 


SUCCESSFUL  STOCK  SPECULATION        45 

is  merely  a  temporary  reaction — they  may 
refer  to  it  as  a  HEALTHY  reaction — and 
they  start  buying  stocks  again,  and  put  the 
market  up,  but  it  does  not  go  up  as  high  as 
it  was  before  the  break  occurred.  When 
stock  prices  do  not  rally  beyond  the  prices 
at  which  they  were  before  the  break  occurred, 
it  is  a  sign  that  the  turning  point  has  been 
reached  and  that  the  bear  market  has  started, 
although  the  majority  of  people  do  not  real- 
ize this  until  a  long  time  afterwards. 

Next  comes  a  period  of  depression,  when 
we  have  low  prices,  low  wages,  hard  times, 
tight  money,  and  many  commercial  failures. 
Many  people  who  lost  all  their  money  dur- 
ing the  speculation  period,  become  thrifty 
and  economize  during  the  period  of  depres- 
sion, and  start  in  to  save  again.  Nearly 
everybody  is  pessimistic  during  this  period. 
Trading  on  the  Stock  Exchange  is  irregular 
and  as  a  rule  very  light. 

This  is  the  time  to  get  stock  bargains, 
but  the  general  public  as  a  rule  doesn't  take 
advantage  of  it.  People  are  scared  and  think 
prices  will  go  still  lower.  The  big  interests 
accumulate  stocks  during  this  period,  and 
sell  them  during  the  period  of  prosperity. 


CHAPTER  XII. 

THE  MONEY  MARKET  AND  STOCK 
PRICES 

Perhaps  no  other  one  thing  influences  the 
movement  of  stock  prices  so  much,  in  a  large 
way,  as  money  conditions.  It  is  impossible 
to  have  a  big  bull  market  without  plenty  of 
money.  During  a  bull  market  nearly  all  stocks 
are  bought  on  margin,  which  is  explained  in 
Chapter  XVI.  This  makes  it  necessary  for 
brokers  to  borrow  large  sums  of  money. 
When  money  is  tight,  it  is  impossible  to  get 
enough  to  carry  on  a  large  movement  in 
stocks. 

You  will  see,  therefore,  that  the  Federal 
Reserve  Bank  has  it  in  its  power  to  regulate 
the  stock  market  to  some  extent.  In  1919 
speculation  was  carried  very  much  further 
than  it  should  have  been,  but  undoubtedly 
it  would  have  been  much  worse  had  the 
Federal  Reserve  Bank  not  raised  interest 
rates  and  urged  member  banks  to  withdraw 
money  from  Wall  Street.  While  there  was 


48        SUCCESSFUL  STOCK  SPECULATION 

considerable  criticism  of  that  action,  it  cer- 
tainly was  a  good  thing  for  the  entire 
country. 

In  a  period  of  depression,  the  banks  ac- 
cumulate money,  and  there  always  is  an 
abundance  of  money  at  the  beginning  of  a 
bull  market.  During  a  period  of  prosperity 
the  banks'  reserves  decrease  and  their  loans 
increase.  When  you  see  these  reserves  go 
down  to  a  very  low  point,  it  is  usually  time 
for  you  to  sell  your  stocks. 


CHAPTER  XIII. 
MINOR  MOVEMENTS  IN  PRICES 

Within  the  major  movements  of  stock 
prices,  there  always  are  several  minor  move- 
ments, which  are  caused  by  various  influ- 
ences. One  of  the  important  causes  is  the 
technical  condition  of  the  market.  Another 
cause  might  be  called  a  psychological  one. 
When  stocks  are  moving  up  steadily  in  a 
bull  market,  people  closely  connected  with 
the  market  expect  a  reaction  and  watch  for 
it.  The  newspapers  predict  it.  Consequently, 
there  is  sufficient  let-up  in  buying  to  allow 
the  pressure  of  selling  by  the  bears  to  bring 
it  about.  However,  the  desire  to  buy  during 
reactions  is  so  general,  many  people  rush  in 
to  buy  and  this  buying,  in  addition  to  the 
covering  by  the  shorts,  puts  the  market  up 
again;  and  if  conditions  are  favorable  for  a 
bull  market,  prices  will  go  up  much  higher 
than  they  were  before. 

In  like  manner,  we  have  rallies  in  bear 
markets.  Of  course  the  professional  bears 
sell  during  these  rallies,  with  the  expecta- 
tion of  buying  later  at  a  cheaper  price. 


50        SUCCESSFUL  STOCK  SPECULATION 

These  minor  price  changes  mean  more  to 
the  majority  of  traders  than  the  major  move- 
ments. The  major  movements  are  so  slow 
that  people  get  out  of  patience,  and  yet  those 
who  are  guided  only  by  the  major  movements 
are  operating  on  a  much  safer  basis.  We 
believe  that  a  greater  amount  of  money  can 
be  made,  with  a  minimum  risk,  by  being 
guided  principally  by  the  major  movements, 
while  taking  advantage  of  the  minor  move- 
ments in  a  minor  way.  However,  stocks  do 
not  move  uniformly  and  there  frequently  is 
an  opportunity  to  buy  some  particular  stock 
at  a  bargain  when  nearly  all  stocks  are  sell- 
ing too  high.  We  try  to  pick  out  these 
opportunities  for  our  clients. 

Reports  of  earnings  by  various  companies 
influence  stock  prices,  as  does  also  the  pay- 
ing of  extra  dividends  or  the  passing  up  of 
dividends.  A  peculiar  psychological  influence 
is  noticed  when  a  company  declares  an  extra 
dividend.  The  price  of  the  stock  usually  goes 
up,  while  as  a  matter  of  fact  the  intrinsic 
value  of  the  stock  is  decreased  by  the  amount 
of  this  dividend;  and  sometimes  it  is  advis- 
able to  sell  a  stock  shortly  after  an  advance 
in  its  dividend  rate. 


-,- 


CHAPTER  XIV. 
TECHNICAL  CONDITIONS 

Technical  conditions  refer  to  the  condi- 
tions that  usually  affect  the  supply  and  de- 
mand, such  as  short  interests,  floating  sup- 
ply, and  stop  loss  orders. 

It  is  sometimes  said  that  supply  and  de- 
mand must  be  equal  or  else  there  could  not 
be  any  sales,  but  that  is  not  so.  There  are 
always  some  people  who  are  willing  to  sell 
at  some  price  above  the  market  who  will  not 
sell  at  the  market ;  and  when  the  demand  for 
stock  is  greater  than  the  supply,  it  goes  up 
until  it  is  supplied  by  some  of  these  people 
who  are  holding  it  at  a  higher  price. 

It  works  the  same  way  when  the  supply 
is  greater  than  the  demand.  There  are  al- 
ways some  people  who  will  buy  at  some  price 
below  the  market.  Therefore,  when  the  sup- 
ply is  greater  than  the  demand  prices  must 
go  down. 

A  stock  may  have  an  intrinsic  value  of 
$100  a  share  and  yet  be  selling  at  $50  a 
share,  and  it  can  never  sell  higher  than  $50 


52        SUCCESSFUL  STOCK  SPECULATION 

until  all  stock  that  is  offered  at  that  price 
is  bought. 

However,  you  should  keep  this  in  mind :  if 
the  real  value  is  $100  a  share,  sooner  or  later 
the  market  price  will  approach  that  figure. 
That  is  why  we  so  strongly  urge  our  cli- 
ents to  buy  stocks  that  have  actual  values, 
or  at  least  prospective  values  far  greater 
than  their  market  prices,  and  either  to  buy 
them  outright  or  margin  them  very  heavily, 
and  then  hold  them  until  the  prices  do  go  up. 

Of  course,  when  one  finds  that  a  mistake 
has  been  made,  the  sooner  one  sells  and  takes 
a  loss  the  better. 


CHAPTER  XV. 
MANIPULATIONS 

Stock  prices  are  influenced  largely  by  ma- 
nipulation. Years  ago  when  the  volume  of 
trading  on  the  New  York  Stock  Exchange 
was  small  compared  with  what  it  is  today, 
it  was  possible  to  influence  the  entire  market 
by  manipulation,  but  it  would  be  very  diffi- 
cult to  do  that  today.  It  is  only  certain 
stocks  that  are  manipulated;  but  if  condi- 
tions are  favorable,  many  other  stocks  may 
be  influenced  by  them. 

There  are  different  kinds  of  manipulation. 
.One  is  for  the  insiders  of  a  company  to  give 
out  unfavorable  news  about  their  company 
if  they  want  the  price  of  the  stock  to  go 
down,  so  that  they  can  buy  it  in;  or  to  give 
out  very  favorable  news  if  they  want  the 
price  to  go  up,  so  that  they  can  sell  out. 
This  method  is  not  practiced  now  to  the  ex- 
tent that  it  was  years  ago.  Public  opinion 
is  strongly  opposed  to  it,  and  we  believe 
business  men  are  acquiring  a  higher  stand- 
ard of  business  ethics.  Methods  of  this  kind 
are  legal  but  they  are  morally  reprehensible. 


54        SUCCESSFUL  STOCK  SPECULATION 

Another  method  of  manipulation  is  the 
forming  of  pools  to  buy  in  the  stock  of  a 
company  and  force  it  up.  If  the  market 
price  of  a  stock  is  far  below  its  real 
value,  we  believe  it  is  justifiable  for  a  pool 
to  force  it  up,  but  the  ordinary  pool  is  merely 
a  scheme  to  rob  the  public. 

There  are  four  periods  to  the  operation 
of  such  pools.  First  is  the  period  of  accum- 
ulation. A  number  of  large  holders  of  stock 
in  a  certain  company  will  pool  their  stock, 
all  agreeing  not  to  sell  except  from  the  pool, 
in  which  all  benefit  proportionately.  Then 
they  give  out  bad  news  about  the  company. 
That  is  very  easy  to  do,  because  financial 
writers  usually  accept  the  news  that  is  given 
to  them  without  much  investigation,  espec- 
ially writers  on  daily  papers,  because  they 
have  not  the  time  to  investigate.  Their  copy 
must  be  ready  in  a  few  hours  after  they  get 
the  information.  See  Chapter  XXV.  on 
"Market  Information"  for  fuller  explanation 
of  the  reason  why  financial  news  usually  is 
misleading.  The  manipulators  of  stock  prices 
can  have  financial  news  "made  to  order." 

When  the  general  public  reads  this  news 
and  sees  the  stock  going  down,  many  of  them 


SUCCESSFUL  STOCK  SPECULATION       55 

get  discouraged  and  sell.  It  is  just  the  time 
they  should  not  sell,  but  it  is  a  well  known 
fact  that  the  majority  of  people  do  in  the 
stock  market  just  what  they  should  not  do. 
The  more  they  sell  the  more  the  price  goes 
down,  and  the  pool  operators  accumulate  the 
stock. 

Having  secured  all  the  stock  they  want, 
they  give  out  good  news  and  continue  to  buy 
the  stock  until  it  starts  to  go  up.  The  public 
reads  this  favorable  news,  and  seeing  the 
stock  go  up,  will  go  into  the  market  and  buy, 
which  puts  it  up  higher.  All  the  time  finan- 
cial writers  are  supplying  good  news  about 
the  stock  and  the  public  buys  it.  After  they 
have  sold  all  of  it,  the  public  may  still  be 
anxious  for  more,  and  the  pool  operators  may 
go  short  of  the  stock.  Then  they  will  begin 
giving  out  bad  news,  so  that  they  can  buy 
in  stock  at  a  lower  price  to  cover  their  short 
interests. 

After  that  they  have  very  little  interest 
in  the  market.  If  it  is  declining  too  fast, 
they  may  support  it  occasionally  by  buying 
some  stock  and  giving  out  some  favorable 
news.  That  will  make  the  market  rally  and 


56        SUCCESSFUL  STOCK  SPECULATION 

they  will  sell  out  the  newly  acquired  stock 
near  the  top  of  the  rally. 

Manipulations  of  this  kind  appear  to  be 
going  on  nearly  all  the  time,  and  there  does 
not  seem  to  be  any  limit  to  the  number  of 
suckers  who  fall  for  them.  But  then,  one 
can't  blame  the  public  when  you  realize  how 
thoroughly  unreliable  is  most  of  the  market 
information  given  to  them. 

Still  another  kind  of  manipulation  is  "one- 
man"  manipulation,  where  one  man  controls 
companies,  which  are  known  as  "one-man" 
companies.  Usually  the  directors  of  these 
companies  are  friends  or  employees  of  his, 
and  in  many  instances  he  has  their  resigna- 
tions in  his  possession,  so  that  they  must  do 
whatever  he  wants  them  to  do.  Owing  to 
the  strict  rules  of  the  New  York  Stock  Ex- 
change, it  is  rather  difficult  for  such  manip- 
ulations to  be  carried  on  there.  But  there 
have  been  many  of  them  on  the  New  York 
Curb.  When  the  Curb  was  operating  on  the 
street  and  was  not  under  very  much  control, 
manipulations  of  this  kind  were  very 
frequent. 

As  an  example,  suppose  a  man  of  this  kind 
has  a  mining  company.  When  he  wants  the 


SUCCESSFUL  STOCK  SPECULATION        57 

stock  to  go  up,  he  sends  the  stockholders  a 
great  deal  of  information  about  the  work  at 
the  mine,  and  perhaps  sends  them  a  telegram 
when  a  new  vein  of  rich  ore  is  found.  The 
stockholders  rush  in  to  buy  more  stock,  and 
that  puts  the  price  up.  Then  he  unloads 
stock  on  them  to  the  extent  that  they  will 
buy  it. 

In  a  day  or  two,  the  stock  may  drop  back 
to  less  than  one  half  of  what  it  was  selling 
at.  If  this  "one-man"  manipulator  wants  to 
buy  any  stock,  he  will  give  out  a  little  un- 
favorable news,  and  he  can  get  stock  at  his 
own  price. 

After  that  the  news  is  good  or  bad  accord- 
ing to  whether  the  manipulator  wants  to  buy 
or  sell,  but  as  a  rule  he  has  an  abundance  of 
stock  that  he  wants  to  sell,  and  is  continually 
giving  out  good  news. 

A  few  years  ago  there  was  a  man  operat- 
ing in  New  York  who  promoted  several  com- 
panies and  manipulated  them  in  a  large  way. 
He  is  out  of  business  now,  but  the  same  thing 
is  still  done  in  a  smaller  way. 

It  is  our  opinion  that  more  money  is  lost 
by  the  public  in  manipulated  stocks  than 
in  promotion  stocks,  and  we  read  a  great 


58        SUCCESSFUL  STOCK  SPECULATION 

deal  about  the  enormous  losses  in  them.  Pro- 
motions that  are  failures  may  be  perfectly 
legitimate  and  conducted  in  the  utmost  good 
faith,  but  manipulations  are  nearly  always 
for  the  purpose  of  swindling  the  public.  How- 
ever, the  lure  of  them  is  so  great  many 
people  cannot  withstand  the  temptations  of 
them  even  after  they  have  been  "trimmed" 
several  times. 


PART  FOUR 

TOPICS  OF  INTEREST  TO 
SPECULATORS 


CHAPTER  XVI. 
MARGINAL  TRADING 

Most  people  who  trade  in  stocks  buy  on 
margin.  The  ordinary  minimum  margin  is 
about  20%  of  the  purchase  price,  because 
banks  usually  lend  about  80%  of  the  market 
value  of  stocks. 

If  you  put  up  20%  of  the  purchase  price 
of  your  stocks  with  your  broker,  he  has  to 
pay  the  other  80%,  but  he  can  do  that  by 
borrowing  that  amount  from  his  bank,  and 
putting  up  the  stock  as  security.  In  this 
way  brokers  are  able  to  handle  all  the  mar- 
gin business  that  comes  to  them,  as  long  as 
money  can  be  borrowed.  Of  course,  there 
are  some  stocks  that  are  not  accepted  by 
banks  as  collateral  for  loans,  and  you  should 
not  expect  your  broker  to  sell  such  stocks 
on  margin.  In  fact,  if  he  offers  to  do  so,  it 
looks  as  though  he  were  running  a  bucket 
shop.  See  chapter  XVIII. 

Many  people  think  that  buying  stocks  on 
margin  is  gambling  and  that  people  should 
not  do  it  for  that  reason,  but  buying  on  mar- 
gin is  done  in  all  lines  of  business,  although  it 


62        SUCCESSFUL  STOCK  SPECULATION 

may  not  be  known  under  that  name.  If  you 
bought  stock  outright,  but  borrowed  80%  of 
the  purchase  price  from  your  banker  to  com- 
plete your  payment  for  it  and  put  up  the 
stock  with  him  as  security,  you  would  be 
buying  on  margin  just  the  same. 

In  like  manner,  if  you  bought  a  home  and 
paid  20%  with  money  you  had  and  borrowed 
the  other  80%  of  the  purchase  price,  you 
would  be  buying  a  home  on  margin.  The 
principal  difference  is  that  when  you  buy 
from  a  broker  on  margin,  one  of  the  condi- 
tions of  his  contract  is  that  he  has  the  right 
to  sell  your  stock  provided  the  market  price 
drops  down  to  the  amount  that  you  owe  on 
the  stock,  whereas  if  you  borrow  money  on 
a  home,  it  is  usually  for  a  certain  specified 
time  and  the  lender  cannot  sell  you  out  until 
that  time  expires.  However,  in  principle, 
there  is  very  little  difference  between  the 
two  transactions. 

Most  margin  traders  do  not  put  up  suf- 
ficient margin.  If  you  put  up  only  the  mini- 
mum margin,  your  broker  has  the  right  to 
call  on  you  for  more  margin  if  the  price  of 
the  stock  declines  at  all.  Unless  you  are 
fully  prepared  at  all  times  to  put  up  an 


SUCCESSFUL  STOCK  SPECULATION        63 

additional  margin  when  called  upon,  you 
should  make  smaller  purchases  and  put  up 
a  heavy  margin  when  you  buy.  The  amount 
of  margin  depends  upon  the  transaction,  but 
we  advise  from  30%  to  50%,  and  at  times 
we  advise  not  less  than  50%  margin  on  any 
purchase.  In  fact  there  are  times  when 
we  advise  not  to  buy  stocks  on  margin  at 
all. 

Those  who  wish  to  be  entirely  free  from 
worry  should  buy  stocks  when  the  prices 
are  very  low,  pay  for  them  in  full,  get  their 
certificates,  and  put  them  away  in  a  safe 
deposit  box.  However,  when  stocks  are  low 
the  risk  in  buying  on  a  liberal  margin  is 
very  small,  and  the  possibilities  of  profit  are 
so  much  greater,  we  do  not  see  any  objec- 
tion to  taking  advantage  of  this  method  of 
trading. 


CHAPTER  XVH. 
SHORT  SELLING 

By  short  selling,  we  mean  selling  a  stock 
that  you  do  not  possess,  with  the  intention 
of  buying  it  later.  Short  selling  in  general 
business  is  very  common,  and  we  think  noth- 
ing of  it.  Manufacturers  frequently  sell 
goods  that  are  not  yet  made,  to  be  delivered 
at  some  future  time.  Selling  stocks  short 
is  a  similar  transaction,  except  that  in  a  ma- 
jority of  cases  delivery  of  the  stock  must 
be  made  immediately. 

However,  your  broker  can  attend  to  that 
by  borrowing  the  stock.  As  explained  in  the 
preceding  chapter,  when  the  market  is  active 
most  of  the  trading  is  done  on  margin.  Your 
broker  buys  a  stock  for  you,  but  as  he  has 
to  pay  for  it  in  full,  it  is  customary  for  him 
to  take  it  to  his  bank  and  borrow  money  on  it. 
A  bank  usually  lends  about  80%  of  the  mar- 
ket value,  but  if  some  other  broker  wants  to 
borrow  this  stock,  he  will  lend  the  full  value 
of  it.  If  that  particular  stock  is  very  scarce 
and  hard  to  get,  the  lender  of  the  stock  may 


66        SUCCESSFUL  STOCK  SPECULATION 

get  the  use  of  the  money  without  any  in- 
terest. 

Therefore,  there  is  an  advantage  to  the 
broker  in  lending  stock,  and  for  that  reason 
it  is  nearly  always  possible  for  a  broker  to 
arrange  delivery  of  stock  for  you  if  you 
wish  to  sell  short.  When  you  instruct  him 
later  on  to  buy  the  stock  for  you,  lie  will  do 
so  and  deliver  it  to  the  broker  from  whom  he 
borrowed  it,  who  will  return  the  money  he 
received  for  it. 

When  you  sell  stock  short  and  the  price 
goes  up,  you  will  have  to  pay  a  higher  price 
for  it.  Therefore,  to  protect  himself  against 
the  possibility  of  losing,  your  broker  demands 
a  payment  from  you  just  the  same  as  you 
pay  margin  when  you  buy  stock. 

Short  selling  is  something  that  we  do  not 
recommend  very  much  to  our  clients.  We 
think  it  is  not  advisable  to  do  any  short  sell- 
ing as  long  as  there  are  good  opportunities 
to  make  money  by  buying ;  but  when  all  bar- 
gains disappear,  as  they  do  sometimes,  you 
must  either  sell  short  or  else  keep  out  of  the 
market  entirely.  At  such  times,  there  may 
be  many  opportunities  to  make  money  by 
short  selling,  and  we  do  not  consider  that 


SUCCESSFUL  STOCK  SPECULATION       67 

there  is  any  reason  why  our  clients  should 
not  take  advantage  of  them. 

Of  course,  great  care  must  be  exercised 
in  selling  stocks  short.  You  might  sell  a 
stock  short  because  you  know  the  market 
price  is  100%  greater  than  its  real  value, 
but  it  is  possible  for  manipulators  to  force  it 
up  a  great  deal  higher;  and  if  you  are  not 
able  to  put  up  sufficient  money  with  your 
broker  to  protect  him,  he  will  buy  at  a  high 
price  and  you  will  lose  the  money  you  have 
put  up  with  him.  In  some  instances,  stocks 
are  cornered  and  the  short  interests  are 
forced  to  buy  the  stocks  at  prices  that  rep- 
resent enormous  losses. 

It  is  a  common  thing  to  read  about  the 
short  interests  in  certain  stocks.  All  stocks 
that  are  sold  short  must  be  bought  sooner  or 
later,  and  when  that  buying  takes  place,  it 
may  affect  the  market  very  much.  There- 
fore, if  it  is  known  that  there  is  a  big  short 
interest  in  a  certain  stock,  we  should  expect 
the  stock  to  sell  at  a  higher  price ;  but  some- 
times the  short  interests  break  the  market 
and  force  the  price  down,  especially  when 
general  conditions  are  in  their  favor. 


CHAPTER  XVIII. 
BUCKET  SHOPS 

There  has  been  so  much  publicity  given 
to  bucket  shops,  nearly  everybody  is  familiar 
with  the  term.  A  broker  runs  a  bucket  shop 
when  he  sells  stock  to  his  clients  on  margin 
and  either  never  buys  the  stock  for  their  ac- 
counts, or  else  sells  it  immediately  after  buy- 
ing it.  The  bucket  shop  simply  gets  your 
money  on  the  supposition  that  you  are  more 
likely  to  be  wrong  than  to  be  right.  Of 
course,  if  you  take  the  bucket  shop's  advice 
you  surely  are  likely  to  be  wrong.  Bucket 
shops  get  their  clients  into  the  very  specu- 
lative stocks,  where  there  is  likely  to  be  a 
great  deal  of  fluctuation  in  the  price  of  the 
stocks,  which  gives  them  frequent  opportun- 
ities to  sell  out  their  clients. 

When  the  market  is  going  down  or  when 
there  are  many  movements  up  and  down  in 
the  price  of  stocks,  the  bucket  shops  make 
money  rapidly,  but  occasionally  there  is  a 
long  period  when  the  market  is  working 
against  the  bucket  shops,  and  unless  they 
have  a  great  deal  of  money  they  must  fail. 


70        SUCCESSFUL  STOCK  SPECULATION 

In  August,  1921,  Stock  Exchange  stocks 
started  to  go  up.  The  upward  movement 
was  very  slow  but  it  was  continual.  Up  to 
the  time  of  this  writing,  there  has  not  been 
a  three-point  reaction,  except  in  a  few  stocks, 
in  all  of  that  time.  Without  a  fluctuating 
market,  the  bucket  shop  has  no  chance  to 
clean  out  its  customers.  As  a  consequence, 
the  bucket  shops  began  to  fail  in  the  early 
part  of  1922,  and  up  to  the  present  writing 
(April,  1922)  there  have  been  more  than  fifty 
of  these  failures.  However,  it  is  not  likely 
that  all  the  bucket  shops  will  be  put  out  of 
business.  The  more  successful  ones  are 
likely  to  "weather  the  storm." 

Many  laws  have  been  enacted  against  buck- 
et shops,  and  we  believe  some  way  will  be 
found  to  get  rid  of  them  at  some  future  time ; 
but  we  do  not  expect  that  to  happen  soon, 
and  we  warn  our  readers  not  to  get  into  their 
hands,  because  if  they  do  not  get  your  money 
away  from  you  one  way  they  are  likely  to 
get  it  some  other  way.  The  man  who  runs 
a  bucket  shop  usually  has  no  conscience,  and 
it  certainly  is  an  unfortunate  thing  for  any- 
one to  get  mixed  up  with  such  a  man. 


CHAPTER  XIX. 
CHOOSING  A  BROKER 

It  is  very  important  that  you  choose  a 
good  broker.  No  matter  how  careful  you  are, 
it  is  possible  to  make  a  mistake.  However, 
if  you  choose  a  broker  who  is  a  member  of 
the  New  York  Stock  Exchange,  you  have 
eliminated  a  very  large  percentage  of  your 
chances  of  getting  a  wrong  broker. 

Occasionally  a  member  of  the  Stock  Ex- 
change fails  and  once  in  a  while  one  is  sus- 
pended for  running  a  bucket  shop  or  being 
connected  with  one,  but  these  instances  are 
very  rare  compared  with  the  number  of  bro- 
kers who  get  into  trouble  who  are  not  mem- 
bers of  the  New  York  Stock  Exchange.  The 
rules  and  regulations  of  the  Stock  Exchange 
protect  you  to  a  great  extent. 

When  you  buy  stock  on  margin,  you  leave 
your  money  in  the  hands  of  a  broker,  and 
you  should  know  that  he  is  responsible.  No 
matter  who  your  broker  is,  you  should  get  a 
report  on  him.  If  you  are  a  subscriber  to 
Bradstreet's  or  Dun's  Agencies,  get  a  report 
from  them.  If  you  are  not  a  subscriber  to 


72        SUCCESSFUL  STOCK  SPECULATION 

any  mercantile  agency,  you  perhaps  have  a 
friend  who  can  get  a  report  for  you,  or  your 
bank  may  get  one  for  you.  Banks  make  a 
practice  of  getting  reports  of  this  kind  for 
their  clients.  When  asked  to  do  so,  we  send 
our  clients  the  names  of  brokers  who  are 
members  of  the  New  York  Stock  Exchange, 
but  we  prefer  not  to  recommend  any  broker. 
Of  course,  we  cannot  guarantee  that  a  broker 
is  all  right.  We  simply  use  our  best  judg- 
ment, but,  as  we  said  before,  you  eliminate 
a  large  percentage  of  your  chances  of  going 
wrong  when  you  trade  with  a  broker  who 
is  a  member  of  the  New  York  Stock  Ex- 
change, 


CHAPTER  XX. 
PUTS  AND  CALLS 

A  "put"  is  a  negotiable  contract  giving  the 
holder  the  privilege  to  sell  a  specified  num- 
ber of  shares  of  a  certain  stock  to  the  maker 
at  a  fixed  price,  within  a  specified  time.  A 
"call"  is  the  exact  reverse.  It  is  a  negoti- 
able contract  giving  the  holder  the  privilege 
to  buy  a  specified  number  of  shares  of  a  cer- 
tain stock  from  the  maker  at  a  fixed  price, 
within  a  specified  time.  The  price  fixed  in 
a  put  or  call  is  set  away  from  the  market 
price  a  certain  number  of  points,  depending 
upon  the  stock  and  the  condition  of  the  mar- 
ket. When  the  market  is  steady  and  not 
fluctuating,  the  price  fixed  is  frequently  only 
two  points  away,  but  in  a  more  active  mar- 
ket it  is  considerably  more. 

For  instance,  at  the  present  time,  U.  S. 
Steel  is  selling  at  about  95,  and  you  can  buy 
a  call  on  it  at  97  or  a  put  at  93.  That  is  by 
paying  a  certain  amount,  which  at  present  is 
$137.50,  you  can  have  the  privilege  of  buy- 
ing 100  shares  of  U.  S.  Steel  at  97,  within 
thirty  days  of  the  date  of  the  purchase  of 


74        SUCCESSFUL  STOCK  SPECULATION 

your  call.  If  Steel  should  go  up  to  101  you 
could  have  your  broker  buy  it  at  97  and  sell 
it  at  the  market,  and  you  would  make  a 
profit  of  four  points,  less  the  cost  of  your 
call  and  commissions. 

As  a  method  of  operating  in  the  stock 
market,  we  do  not  recommend  the  buying  of 
puts  and  calls.  Professional  speculators  may 
be  able  to  use  them  to  advantage  sometimes, 
but  for  the  outsider,  who  is  not  in  close  touch 
with  the  market,  there  is  nothing  about  them 
to  recommend. 

Here  is  one  point :  the  people  who  sell  puts 
and  calls  fix  the  terms.  If  the  market  is 
irregular,  they  will  set  the  point  of  buying 
or  selling  far  away  from  the  market  price. 
These  people  are  shrewd  traders  and  they 
make  the  terms  in  their  own  favor.  It  is 
generally  said  that  nearly  all  the  buyers  of 
puts  and  calls  lose,  and  that  is  our  opinion. 
Therefore,  we  advise  you  to  leave  them  alone. 


CHAPTER  XXL 
STOP  LOSS  ORDERS 

A  "stop-loss"  is  an  order  to  your  broker 
to  sell  you  out  if  the  market  sells  down  a 
certain  number  of  points.  Many  speculators 
place  stop  loss  orders  only  two  points  from 
the  market  price.  The  idea  is  that  when  the 
market  starts  to  go  down  it  is  likely  to  con- 
tinue going  down,  and  by  taking  a  two-point 
loss  you  may  save  a  much  greater  loss.  It 
also  can  be  applied  to  a  short  sale,  when  you 
give  your  broker  instructions  to  buy  in  the 
stock  for  you  if  it  goes  up  a  certain  number 
of  points. 

We  read  so  much  in  the  financial  news 
about  stop-loss  orders  or  merely  stop  orders, 
which  is  the  same  thing,  the  average  reader 
is  likely  to  get  the  idea  that  it  is  something 
he  must  use  for  his  own  protection,  but  it 
is  our  opinion  that  it  is  something  that  should 
be  used  very  seldom  by  those  who  trade  along 
the  broad  lines  recommended  by  us.  If  your 
purchases  were  made  in  stocks  that  were 
very  cheap,  you  should  continue  to  hold  them 
in  case  of  a  reaction.  If  you  bought  them 


76        SUCCESSFUL  STOCK  SPECULATION 

outright  or  on  a  substantial  margin,  you  are 
not  in  danger,  and  you  should  look  upon  your 
loss  merely  as  a  paper  loss.  In  the  great 
majority  of  cases,  you  will  be  a  great  deal 
better  off  to  hold  on  to  your  stocks  than  you 
would  be  if  you  had  a  stop-loss  order. 

A  large  number  of  stop-loss  orders  is  a 
good  thing  for  the  short  interests.  Let  us 
take  U.  S.  Steel  again,  as  an  example.  Sup- 
pose it  is  selling  at  94  and  it  is  believed 
that  there  are  a  large  number  of  stop-loss 
orders  at  92.  The  short  interests  may  sell 
the  stock  heavily  and  force  it  down  to  92. 
Then  the  brokers  with  stop-loss  orders  would 
begin  to  sell ;  that  would  force  the  price  down 
still  lower,  and  the  short  interests  could  buy 
in  to  cover  at  this  lower  price. 

Therefore,  we  believe  that  stop-loss  orders 
are  a  bad  thing  and,  as  a  rule,  do  not  recom- 
mend them. 

There  is  one  instance  where  a  stop-loss 
order  can  be  used  to  advantage,  and  that  is 
near  the  top  of  a  bull  market.  It  is  impos- 
sible to  tell  when  the  market  has  reached  the 
top.  If  you  sell  out  too  soon,  you  may  lose 
a  profit  of  several  points.  Of  course,  it  is 
better  to  do  that  than  to  take  a  chance  of 


SUCCESSFUL  STOCK  SPECULATION        77 

a  large  loss.  In  that  case,  you  might  instruct 
your  broker  to  place  a  stop-loss  order  at  two 
or  more  points  below  the  market,  and  keep 
moving  it  up  as  the  market  price  moves  up. 
Then  when  the  reaction  does  come,  he  will 
sell  you  out  and  prevent  you  from  losing  a 
large  part  of  your  profit.  That  is  about  the 
only  instance  where  we  recommend  a  stop- 
loss  order,  but  we  do  recommend  it  to  our 
clients  sometimes,  although  seldom. 

If  the  stock  you  own  is  selling  at  more 
than  100  we  would  suggest  that  you  make 
the  stop  loss  order  at  least  three  points  from 
the  market,  but  for  stocks  selling  below  100, 
a  two-point  stop-loss  order  might  be  used. 
However,  the  number  of  points  should  be 
decided  upon  in  each  particular  case.  In  the 
special  instructions  to  our  clients,  we  tell 
them  when  we  think  they  can  use  a  stop- 
loss  order  to  advantage. 


PART  FIVE 
CONCLUDING  CHAPTERS 


CHAPTER  XXII. 
THE  DESIRE  TO  SPECULATE 

It  is  said  that  the  desire  to  speculate  is 
very  strong  in  the  American  people.  That 
is  why  our  country  has  made  greater  progress 
than  any  other  country  in  the  world,  because 
progress  is  the  result  of  speculation.  We 
are  not  referring  merely  to  stock  specula- 
tions, but  to  the  word  in  its  broadest  sense. 
Every  new  undertaking  is  a  speculation. 

An  inventor  speculates  on  what  he  is  going 
to  invent.  Often  such  speculations  result  in 
losses,  because  many  inventors,  or  would-be- 
inventors,  never  accomplish  very  much.  They 
spend  their  money,  time,  and  efforts,  and 
probably  live  years  in  poverty,  and  then  if 
the  invention  is  not  profitable,  they  are  heavy 
losers.  Many  inventors  spend  the  best  years 
cf  their  lives  in  poverty  and  never  succeed. 
We  hear  a  great  deal  about  some  of  those 
who  do  succeed,  but  very  little  about  those 
who  fail — those  whose  speculations  were  un- 
successful— except  when  somebody  accuses 
them  of  being  crooks  because  they  solicited 


82        SUCCESSFUL  STOCK  SPECULATION 

money  for  the  promotion  of  their  inventions 
and  did  not  succeed. 

It  is  the  same  thing  with  every  new  busi- 
ness. It  is  purely  a  speculation.  It  is  a  com- 
mon saying  that  95%  of  commercial  under- 
takings fail.  We  do  not  know  that  that 
statement  is  correct,  but  there  is  no  question 
but  that  the  number  of  failures  is  very  great, 
which  shows  the  great  risk  in  going  into  a 
new  undertaking.  It  is  far  greater  than  the 
risk  involved  in  stock  speculating  when  it  is 
done  in  accordance  with  the  advice  given  in 
this  book. 

Yet,  there  would  be  no  progress  without 
speculating  of  this  kind.  If  those  entering 
a  new  business  would  make  a  careful  study 
of  the  venture  before  entering  it,  and  would 
exercise  greater  care  and  judgment  in  con- 
ducting it,  the  number  of  failures  would  be 
very  much  less.  The  same  thing  is  true  of 
stock  speculating.  The  failures  in  stock  spec- 
ualting  are  caused  mainly  by  ignorance  and 
greediness.  Many  people  who  would  be  satis- 
fied with  a  fair  return  on  their  money  in  a 
business  enterprise,  think  they  ought  to  make 
a  100%  profit  in  a  few  weeks  in  stock 
speculation. 


SUCCESSFUL  STOCK  SPECULATION       83 

There  is  something  about  stock  specula- 
tion that  appeals  to  the  greediness  and  pure 
gambling  instincts  of  people.  In  the  chapter 
on  Manipulation,  we  have  told  you  how  stock 
prices  are  put  up  and  down.  Some  outsider 
accidentally  buys  one  of  these  stocks  just 
before  the  price  starts  up.  In  thirty  days 
he  has  made  several  hundred  per  cent  profit. 
He  does  not  realize  that  it  was  purely  acci- 
dental as  far  as  he  was  concerned,  and  he 
tries  to  do  the  same  thing  again,  and  loses 
all  of  his  profits  and  probably  all  of  his  capi- 
tal as  well. 

A  stock  gambler  (we  use  the  word  "gam- 
bler" to  refer  to  a  man  who  operates  ignor- 
antly)  is  watching  a  large  number  of  ex- 
tremely speculative  stocks  and  suddenly 
notices  one  that  takes  a  big  jump  in  price. 
Then  he  says  to  himself,  "If  I  only  had 
bought  that  stock  on  a  ten-point  margin,  I 
would  have  made  several  hundred  per  cent 
profit."  He  picks  out  another  stock  that 
some  one  tells  him  is  going  to  do  equally 
as  well.  He  buys  as  much  of  it  as  he  can  and 
puts  up  all  the  money  he  has  as  a  margin, 
but  the  price  doesn't  go  up.  Perhaps  the 
price  goes  down  and  he  loses  his  margin ;  but, 


84        SUCCESSFUL  STOCK  SPECULATION 

it  may  remain  almost  stationary  for  a  long 
period,  sometimes  for  a  year  or  more,  and 
during  all  of  this  time,  this  man  is  worrying 
for  fear  he  will  lose  his  money.  If  he  does 
not  lose  his  money,  it  is  tied  up  for  a  long 
time  where  he  cannot  use  it  to  take  advant- 
age of  real  opportunities  that  come  his  way. 

It  does  not  pay  to  take  big  risks.  That  is 
true  in  stock  speculating  the  same  as  in  any 
other  undertaking.  Most  speculators  are 
keeping  their  minds  all  the  time  on  the  possi- 
bilities of  profit  and  not  thinking  about  the 
possibilities  of  losing. 

If  you  want  to  be  successful  in  stock  spec- 
ulating, there  is  one  thing  you  must  learn 
to  do,  and  that  is  never  to  think  about  the 
big  profits  you  might  have  made  if  you  had 
bought  such  and  such  a  stock,  because  the 
probabilities  are  you  could  not  have  afforded 
to  take  the  necessary  risk  in  buying  that 
stock. 

Of  course,  after  it  is  all  over,  it  may  look 
to  you  as  though  the  buying  of  that  stock 
was  a  sure  thing,  but  the  buying  of  such 
stocks  is  never  a  sure  thing.  The  risk  always 
exists.  There  is  an  old  saying,  and  we  believe 
a  very  true  one,  that  a  man  who  speculates 


SUCCESSFUL  STOCK  SPECULATION        85 

with  the  idea  of  getting  rich  quickly  loses  all 
his  money  quickly,  but  that  the  man  who 
speculates  with  the  idea  of  making  a  fair 
return  on  his  money  usually  gets  rich. 

In  our  advice  to  our  clients,  we  seldom 
recommend  highly  speculative  stocks,  be- 
cause we  consider  the  avoidance  of  loss  more 
important  than  the  making  of  profits.  You 
may  object  to  that  statement,  because  you 
speculate  to  make  profits,  and  not  for  the 
purpose  of  avoiding  losses.  Nevertheless,  if 
you  are  careful  in  keeping  your  losses  down 
to  a  minimum,  your  profits  are  likely  to  be 
very  liberal.  Any  trader  who  trades  for  any 
great  length  of  time  is  likely  to  make  large 
profits  sometimes,  and  yet  the  majority  of 
them  have  greater  losses  than  profits.  It  is 
said  that  more  than  80%  of  all  margin  trad- 
ers lose ;  but  we  do  not  consider  that  an  argu- 
ment against  trading  on  margin,  because 
these  losses  are  mostly  due  to  ignorar.ee, 
greediness,  and  the  taking  of  too  great 
chances. 

Do  not  suppress  your  desire  to  speculate. 
All  progress  would  stop  if  people  did  not 
speculate.  But  do  not  speculate  in  stocks 
nor  in  anything  else  without  any  knowledge 


86        SUCCESSFUL  STOCK  SPECULATION 

of  what  you  are  doing,  and  try  to  use  as 
much  good  judgment  and  care  as  possible  in 
all  of  your  transactions.  If  you  do  not  know 
what  to  do,  get  advice  from  someone  who  is 
supposed  to  know  and  who  is  not  interested 
in  having  you  buy  or  sell.  Stock  speculating 
with  safety  is  possible  for  those  who  make 
the  effort  to  be  guided  by  correct  principles. 


CHAPTER  XXIII. 
TWO  KINDS  OF  TRADERS 

There  are  two  kinds  of  stock  traders.  One 
kind  nearly  always  makes  a  profit,  and  the 
other  wins  sometimes  and  loses  other  times, 
but  eventually  loses  all  if  he  does  not  change 
his  methods.  The  first  kind  buys  stocks  on 
liberal  margin  or  outright  and  is  not  worried 
when  the  market  goes  against  him,  because 
he  has  good  reasons  for  believing  that  prices 
eventually  will  go  up.  If  he  does  have  to 
take  a  loss  occasionally,  it  is  likely  to  be 
small  compared  with  his  profits.  The  second 
kind  wants  to  make  a  big  profit  quickly,  and 
he  buys  stocks  that  he  thinks  are  going  to 
make  big  gains  in  the  near  future,  but  his 
selections  are  not  based  upon  good  judgment. 

We  might  designate  these  two  traders  as 
the  careful  trader  and  the  reckless  trader. 

The  careful  trader  tries  to  get  good  advice 
on  the  markets  and  the  values  of  stocks.  If 
the  advice  appears  to  him  to  be  conservative, 
he  is  guided  by  it ;  but  if  the  reckless  trader 
gets  advice  on  stocks,  he  is  not  guided  by  it 
if  it  is  of  a  conservative  nature.  If  he  does 


88        SUCCESSFUL  STOCK  SPECULATION 

take  advice,  it  is  likely  to  be  from  one  of 
those  unreliable  market  tipsters  who  is  very 
emphatic  in  his  statements  about  what  the 
market  is  going  to  do.  The  reckless  trader 
lets  his  greed  and  desire  for  large  and  quick 
profits  influence  his  judgment. 

Once  in  a  while  one  of  these  reckless  trad- 
ers realizes  that  he  has  made  a  great  mis- 
take, and  he  wants  to  change  his  attitude. 
Usually  he  is  holding  several  stocks  that 
show  a  big  loss  and  he  does  not  know  what 
to  do  with  them.  He  reasons  that  they  are 
selling  so  low  now  they  surely  will  sell  higher 
some  time.  Perhaps  his  reasoning  is  good 
and  perhaps  it  is  not.  The  stocks  may  have 
-no  chance  of  going  up  for  a  very  long  time, 
if  at  all,  but  even  though  they  have  a  good 
chance  to  go  up  later,  it  is  better  for  him  to 
sell  them  now  if  he  can  put  the  money  derived 
from  the  sale  into  something  else  that  has  a 
better  chance  to  make  a  profit. 

Our  advice  is  never  to  hesitate  to  sell  and 
take  a  loss  if  you  can  put  the  proceeds 
from  the  sale  into  something  better  rather 
than  leave  it  in  the  stock  in  which  it  is  now. 
It  is  not  so  much  a  question  whether  or  not 
the  stock  you  are  holding  will  go  up,  as  it 


SUCCESSFUL  STOCK  SPECULATION        89 

is  whether  or  not  you  would  buy  that  par- 
ticular stock  if  you  were  just  coming  into 
the  market  to  make  a  purchase.  Of  course 
there  is  a  loss  of  commissions  when  you  sell 
a  stock  and  buy  something1  else,  and  for  that 
reason  we  sometimes  recommend  holding  a 
stock  when  we  would  not  recommend 
buying  it. 

If  you  have  been  a  reckless  trader  in  the 
past,  the  only  thing  for  you  to  do  is  to 
change  your  methods  and  try  to  become  a 
careful  trader.  It  is  much  better  to  go  to 
the  extreme  in  carefulness  and  be  satisfied 
with  very  small  profits  than  to  take  great 
risks. 


CHAPTER  XXIV. 
POSSIBILITIES  OF  PROFIT 

What  are  the  possibilities  of  profit  in  stock 
speculation?  That  question  is  frequently 
asked  but  it  is  difficult  to  answer.  James  R. 
Keene  is  quoted  as  having  said :  "Many  men 
come  to  Wall  Street  to  get  rich ;  they  always 
go  broke.  Others  come  to  Wall  Street  to  op- 
erate intelligently  for  fair  returns;  they  us- 
ually get  rich." 

While  it  is  true  that  nearly  all  stock  trad- 
ers who  try  to  make  unusually  large  profits 
in  a  very  short  time  in  stock  trading  lose,  yet 
unusual  profits  can  be  made  if  you  exercise 
good  judgment  and  have  patience. 

Roger  W.  Babson,  in  his  book  entitled, 
"Business  Barometers,"  speaks  of  the  possi- 
bilities of  profit  in  language  that  would  be 
considered  greatly  exaggerated  if  used  by  a 
promoter,  and  yet  he  is  extremely  conserva- 
tive in  his  advice  to  traders.  He  advises 
never  to  buy  on  margin,  never  to  sell  short, 
and  staying  out  of  the  market  entirely, 
neither  buying  or  selling,  for  a  great  part 
of  the  time.  Here  is  a  quotation  from  his 


92        SUCCESSFUL  STOCK  SPECULATION 

book,  which  follows  a  detailed  statement  of 
an  investment  of  $2,500  over  a  period  of  fifty 
years : 

"The  preceding  example  shows  that  $2,500  con- 
servatively invested  in  a  few  standard  stocks  about 
fifty  years  ago  would  today  amount  to  over 
$1,000,000.  These  are  not  only  strictly  investment 
stocks,  but  are  also  stocks  which  have  fluctuated 
comparatively  little  in  price.  This,  moreover  was 
possible  by  giving  orders  to  buy  or  sell  only  once 
in  every  three  or  four  years. 

"If  other  stocks  which  were  not  dividend  payers 
and  which  have  shown  greater  fluctuations  were 
purchased,  and  advantage  had  been  taken  of  the 
intermediate  fluctuations,  the  $2,500  would  have 
amounted  to  much  larger  figures.  By  intermediate 
movements  is  not  meant  the  weekly  movements 
which  the  ordinary  professional  operator  notes,  but 
the  broader  movements  extending  over  many  months 
and  possibly  a  year  or  more.  Nevertheless,  these 
broader  intermediate  movements  should  not  be 
noticed  by  a  conservative  investor,  as  it  is  possible 
to  correctly  diagnose  only  the  movements  extending 
over  longer  periods.  Many  brokers  believe  that  it 
is  possible  to  discern  also  these  intermediate  move- 
ments of  six  or  eight  months;  and  if  so,  the  following 
results  would  have  been  possible. 

"$5,000  invested  in  'St.  PauF  in  1870  would 

amount  to  over  $10,000,000  today. 
"$5,000  invested  in  'Union  Pacific'  in  1870 
would  amount  to  over  $15,000,000  today. 
"$5,000  invested  in  'Central  of  New  Jersey* 

would  amount  to  over  $30,000,000  today. 
"$5,000  invested  in  'Northern  Pacific*  would 

amount  to  over  $50,000,000  today. 
'These  figures  are  not  based  on  the  supposition 
that  the  investor  was  selling  at  the  top  of  every 


SUCCESSFUL  STOCK  SPECULATION        93 

rise  or  buying  at  the  bottom  of  every  decline,  but 
that  the  transactions  were  made  at  average  'high' 
and  average  'low7  prices  based  upon  the  study  of 
technical  conditions." 

If  such  large  profits  can  be  made  by  fol- 
lowing Babson's  advice,  of  course  larger 
profits  can  be  made  by  buying  on  conserva- 
tive margin  and  by  selling  short  when  all 
the  conditions  are  in  favor  of  it. 

While  there  are  possibilities  of  making 
extremely  large  profits  without  taking  great 
risks,  by  those  who  are  patient  and  exercise 
good  judgment,  one  should  be  satisfied  with 
a  small  profit,  if  it  is  the  result  of  great  care, 
in  an  effort  to  eliminate  risk.  Of  course,  you 
can  afford  to  take  a  much  greater  risk  with 
a  small  part  of  your  speculative  fund  than 
you  can  with  all  of  it.  The  less  money  you 
have  with  which  to  speculate,  the  more  care- 
ful you  should  be.  Some  people  cannot  afford 
to  speculate  at  all.  They  should  invest  their 
funds  in  good,  safe  investments,  but  this 
book  is  written  for  speculators. 

Careful  stock  speculation  carried  on  regu- 
larly over  a  period  of  years,  we  believe  brings 
larger  returns  than  almost  anything  else,  and 
in  the  next  chapter  we  tell  you  something 
about  where  to  get  information  to  guide  you. 


CHAPTER  XXV. 
MARKET  INFORMATION 

Where  do  you  get  your  market  informa- 
tion? Perhaps  most  people  get  it  from  the 
daily  papers.  When  you  look  over  the  financial 
news  of  one  of  the  leading  metropolitan  pa- 
pers and  see  how  much  there  is  of  it,  you  can 
get  some  idea  of  the  enormous  volume  of 
work  necessary  to  get  this  matter  ready  for 
the  press  in  a  few  hours.  There  is  no  time  to 
confirm  reports.  It  is  necessary  that  many 
of  the  articles  be  written  from  pure  imagi- 
nation, based  on  rumors. 

Weekly  and  monthly  periodicals  can  be 
more  accurate  in  their  information,  but  even 
they  are  not  always  dependable.  Much  of 
the  financial  news  published  comes  from 
agencies  that  are  not  reliable.  Read  what 
Henry  Clews  says  about  them: 

"Principally  among  these  caterers  are  the  financial 
news  agencies  and  the  morning  Wall  Street  news 
sheet,  both  specially  devoted  to  the  speculative  inter- 
ests that  centre  at  the  Stock  Exchange.  The  object  of 
these  agencies  is  a  useful  one;  but  the  public  have  a 
right  to  expect  that  when  they  subscribe  for  informa- 
tion upon  which  immense  transactions  may  be  under- 
taken, the  utmost  caution,  scrutiny  and  fidelity 


96        SUCCESSFUL  STOCK  SPECULATION 


should  be  exercised  in  the  procurement  and  publica- 
tion of  the  news.  Anything  that  falls  short  of  this 
is  something  worse  than  bad  service  and  bad  faith 
with  subscribers;  it  is  dishonest  and  mischievous. 
And  yet  it  cannot  be  denied  that  much  of  the  so- 
called  news  that  reaches  the  public  through  these 
instrumentalities  must  come  under  this  condemnation. 
The  'points,'  the  'puffs,'  the  alarms  and  the  canards, 
put  out  expressly  to  deceive  and  mislead,  find  a  wide 
circulation  through  these  mediums,  with  an  ease 
which  admits  of  no  possible  justification.  How  far 
these  lapses  are  due  to  the  haste  inseparable  from  tne 
compilation  of  news  of  such  a  character,  how  far  to 
a  lack  of  proper  sifting  and  caution,  how  far  to  less 
culpable  reasons  I  do  not  pretend  to  decide;  but 
this  will  be  admitted  by  every  observer,  that  the 
circulation  of  pseudo  news  is  the  frequent  cause 
of  incalculable  losses.  Nor  is  it  alone  in  the  matter 
of  circulating  false  information  that  these  news  ven- 
ders are  at  fault.  The  habit  of  retailing  'points' 
in  the  interest  of  cliques,  the  volunteering  of  advice 
as  to  what  people  should  buy  and  what  they  should 
sell,  the  strong  speculative  bias  that  runs  through 
their  editorial  opinions,  these  things  appear  to  most 
people  a  revolting  abuse  of  the  true  functions  of 
journalism." 

Of  course,  every  trader  gets  market  letters 
from  one  or  more  brokers.  These  are  many 
and  varied  in  character.  Some  of  them  are 
prepared  with  great  care  and  give  reliable 
information,  but  you  must  remember  that 
a  broker's  market  letter  is  published  for  the 
purpose  of  getting  business,  and  business  is 
created  only  by  the  customers'  trading. 
Therefore  it  is  to  the  broker's  interest  to 


SUCCESSFUL  STOCK  SPECULATION       97 

have  his  customers  make  many  trades  in- 
stead of  a  few  trades.  In  his  book  "Business 
Barometers",  Roger  W.  Babson  reproduces  a 
letter  written  to  him  by  the  Manager  of  the 
Customers'  Room  of  a  Stock  Exchange 
House.  We  consider  this  letter  so  important 
to  all  traders,  we  are  taking  the  liberty  to 
reproduce  it  here: 

"Hearing  on  every  hand  about  the  fortunes  made 
in  Wall  Street,  I  decided,  upon  being  graduated  from 
college,  to  devote  myself  to  finance.  With  this  end 
in  view,  I  secured  a  position  with  a  first-class  New 
York  Stock  Exchange  House,  finally  becoming  the 
'handshaker'  for  the  firm;  that  is,  'manager*  of  the 
customers'  room.  So  I  had  an  exceptional  oppor- 
tunity to  size  up  the  stock  business.  The  chief 
duties  of  the  manager  are  to  meet  customers  when 
they  visit  the  office,  tell  them  how  the  market  is 
acting,  the  latest  news  from  the  news-tickers  and 
the  gossip  of  the  Street.  But  the  real  duties  are 
to  get  business  for  the  house.  Once  a  most  peculiar 
man  came  to  the  office.  He  was  about  forty-five 
years  of  age,  dressed  in  a  faded  cutaway  coat,  high- 
water  trousers,  and  an  East  Side  low-crown  derby 
hat.  In  a  high  squeaky  voice  he  said  that  he  knew 
our  Milwaukee  House  and  would  like  to  open  an  ac- 
count. Of  course,  we  were  all  smiles,  for  here  was 
a  new  'customer.1 

"One  day  while  in  Boston  he  called  us  up  on  the 
long-distance  telephone  to  make  an  inquiry  about 
the  grain  market.  One  of  my  assistants,  desiring  to 
get  a  commission  out  of  him,  said  'We  hear  that 
Southern  Pacific  is  going  up;  you  had  better  get 
aboard.'  He  said  'All  right;  buy  me  a  hundred  at 
the  market.'  The  stock  was  bought,  but  he  never 
saw  daylight  on  his  purchase,  for  the  market  de- 


98        SUCCESSFUL  STOCK  SPECULATION 


clined  steadily  afterward  and  by  the  time  he  got 
back  from  Boston  it  showed  a  heavy  loss.  The  man 
who  advised  its  purchase  had  no  special  knowledge 
about  the  stock,  but  simply  took  a  chance,  know- 
ing that  the  market  had  only  two  ways  to  go,  and  it 
might  go  up,  in  which  case,  besides  making  twenty- 
five  dollars  in  commissions  for  the  house,  he  would 
be  patted  on  the  back  for  his  good  judgment.  If  the 
market  went  down,  as  it  did,  he  would  still  make 
twenty-five  dollars. 

"I  venture  to  say  that  99%  of  the  speculations 
on  the  New  York  Stock  Exchange  are  based  on 
such  so-called  'tips'.  The  manager  has  got  to  get 
the  business  to  keep  his  position  and  salary,  and  this 
can  only  be  done  by  'touting'  people  into  the  market. 
So  he  draws  on  the  'dope'  sheets  of  the  professional 
tipsters  and  his  own  feelings,  and  gives  positive 
information  to  the  bleating  lamb  that  the  Standard 
Oil  is  putting  up  St.  Paul,  or  that  certain  influential 
bankers  are  'bulling'  Union  Pacific.  The  lamb  buys 
the  stock,  the  broker  gets  the  commission,  and  then 
the  lamb  worries  his  heart  out  as  he  sees  his  one- 
thousand-dollar  margin  jumping  around  in  value. 
Now  it  has  increased  to  eleven  hundred  dollars,  then 
declined  to  nine  hundred  and  fifty  dollars,  then  nine 
hundred  dollars,  eight  hundred  dollars,  then  back  to 
eight  hundred  and  fifty  dollars  and  then  it  takes  the 
'toboggan'  to  three  hundred  dollars  upon  which  the 
broker  calls  for  margins,  and  sells  the  customer  out 
if  they  are  not  forthcoming,  the  whole  speculation 
being  based  on  the  manager's  'feeling'  that  stocks 
ought  to  go  up. 

"Men  of  affairs  who  will  not  play  poker  at  home, 
and  are  shocked  at  the  mention  of  faro  and  roulette, 
which  any  old-timer  will  tell  you  are  easier  to  beat 
than  the  stock  market,  think  they  are  using  business 
judgment  when  they  try  to  make  money  on  stock 
market  'tips'.  Anyone  with  common  sense  can  see 
that  a  10%  margin  has  no  more  chance  in  an  active 
market  than  a  brush  dam  in  a  Johnstown  flood.  One 


SUCCESSFUL  STOCK  SPECULATION       99 

of  the  causes  for  this  kind  of  speculating  on  a  mar- 
gin is  that  a  broker's  commission  is  only  12  *£  cents 
per  share  and  it  does  not  pay  to  do  small-lot  bus- 
iness. The  one-thousand-dollar  margin  would  only 
buy  ten  shares  outright  and  net  the  broker  but  $1.25 
for  buying  and  $1.25  for  selling,  whereas  that  same 
amount  as  margin  on  one  hundred  shares  yields  the 
broker  $12.50  each  way  besides  interest  on  the  bal- 
ance, the  net  result  being  that  for  any  given  amount 
of  money  a  speculator  on  10%  margin  multiplies  his 
profits  by  ten  and  his  losses  by  ten  over  those  that 
would  occur  were  he  to  buy  the  stock  outright  and 
take  it  home.  The  broker  on  his  side  multiplies  his 
commission  by  ten  over  what  he  would  receive  were 
he  to  do  an  investment  business." 

From  the  above  letter  you  get  an  idea  of 
the  attitude  of  an  employee  of  the  average 
broker's  office.  He  would  not  be  considered 
loyal  to  his  employer  if  he  had  a  different  at- 
titude. When  an  attitude  like  this  influences 
the  broker's  market  letters,  they  are  not 
reliable. 

You  may  ask  whether  there  is  any  reliable 
information  about  the  market.  Yes,  there 
is.  There  are  several  large  organizations 
that  make  a  study  of  fundamental  statistics 
and  statistics  of  different  companies  and  give 
information  to  their  subscribers  based  upon 
this  knowledge.  We  believe  that  is  the  only 
kind  of  information  that  is  worth  very  much 
to  a  trader,  except  the  statistical  information 
— the  number  of  shares  sold  and  the  prices  at 


100      SUCCESSFUL  STOCK  SPECULATION 

which  they  are  sold — he  gets  from  his  daily 
or  weekly  papers.  Some  of  the  principal  or- 
ganizations of  this  kind  are  as  follows : 

Standard  Statistics  Company,  Inc. 
Babson's  Statistical  Organization. 
The  Brookmire  Economic  Service. 
Harvard  Economic  Service. 
Poor's  Investment  Service. 
Moody' s  Investors  Service. 
Richard  D.  Wyckoff  Analytical  Staff. 

The  above  are  the  principal  organizations 
of  this  kind.  Subscriptions  to  their  service 
cost  from  $85  to  $1000  a  year.  In  addition 
to  these  there  are  a  few  other  organizations 
besides  our  own  and  individuals  giving  a 
somewhat  similar  service,  but  we  know  of 
none  that  gives  such  a  service  at  as  low  a 
price  as  ours. 

You  should  not  confuse  the  service  given 
by  the  above  organizations  with  that  given 
by  many  organizations  and  individuals  who 
attempt  to  tell  you  what  the  market  is  going 
to  do  from  day  to  day.  In  other  words,  they 
give  'tips'  on  the  market.  There  are  a  num- 
ber who  issue  daily  market  letters  of  this 
kind  and  charge  from  $10  to  $25  a  month 
for  their  service,  but  it  is  a  line  of  service 
that  we  do  not  recommend  at  all,  because  we 
consider  that  you  would  be  taking  a  very 


SUCCESSFUL  STOCK  SPECULATION      IQI 


great  risk  if  you  followed  advice  of  that  kind. 
You  might  make  enormously  large  profits 
occasionally,  but  you  would  also  have  fre- 
quent losses,  and  when  the  losses  did  come 
they  might  be  greater  than  all  the  previous 
profits.  We  want  you  to  understand  that 
that  kind  of  advice  is  entirely  different  from 
what  we  are  recommending. 


CHAPTER  XXVI. 
SUCCESSFUL  SPECULATION 

Success  in  stock  speculation  depends  upon 
a  few  things  that  are  very  simple. 

^^you  know  what  to  buy,  when  to  buy, 
and  when  to  sell,  and  will  act  in  accordance 
with  that  knowledge,  your  success  is  assured. 
You  may  think  it  is  impossible  to  know  these 
things,  but  it  is  not  so  difficult  as  it  is  sup- 
posed to  be. 

Many  people  buy  stocks  at  the  wrong  time, 
and  most  of  those  who  do  buy  them  at  the 
right  time,  buy  the  wrong  stocks.  Right  now 
(early  in  April,  1922)  is  buying  time  in  the 
stock  market,  and  it  is  possible  that  this  buy- 
ing time  may  continue — with  some  interrup- 
tions— for  another  year  or  two,  or  even 
longer. 

It  is  more  difficult,  however,  to  tell  you 
WHAT  stocks  to  buy.  First  of  all,  we  ad- 
vise you  against  buying  stocks  that  are  put 
up  to  high  prices  by  manipulation.  Of  course, 
if  you  get  in  one  of  those  stocks  right  and 
get  out  right,  your  profits  are  very  large, 
but  you  take  a  great  risk,  and  those  who  win 


104      SUCCESSFUL  STOCK  SPECULATION 

once  or  twice  by  this  method  are  almost  sure 
to  lose  everything  sooner  or  later  in  an  ef- 
fort to  do  the  same  thing  again.  Your 
chances  are  not  much  better  than  if  you 
gambled  at  Monte  Carlo.  The  chances  in 
buying  manipulated  stocks  are  invariably 
against  the  outsider. 

There  always  is  so  much  publicity  about 
these  very  active  speculative  stocks  that  the 
public  is  attracted  towards  them.  News- 
papers and  brokers'  market  letters  give  al- 
together too  much  space  to  them.  Such 
stocks  sell  far  too  high,  and  when  the  break 
comes,  it  brings  ruinous  losses  to  many 
people. 

On  the  other  hand,  by  following  a  con- 
servative course,  you  really  have  a  chance  to 
make  large  profits  with  a  minimum  risk.  We 
are  giving  below  sixteen  stocks  that  we  rec- 
ommended in  our  Advisory  Letter  of  Febru- 
ary 14th,  1922,  with  the  approximate  prices 
of  them  then  and  the  approximate  prices  on 
March  31st.*  In  arriving  at  these  prices,  we 


*We  did  not  advise  the  sale  of  these  stocks  on  March  31st, 
but  the  author  figured  profits  to  that  date  because  this  book 
was  written  shortly  after  that.  If  these  stocks  had  been  bought 
on  or  about  February  14th,  on  the  margin  basis  suggested  by 
us,  and  sold  six  months  later,  the  profit  would  have  been  more 
than  60%,  or  120%  yearly. 


SUCCESSFUL  STOCK  SPECULATION  105 

took  the  closing  prices  on  February  13th  and 
on  March  31st,  and  omitted  the  fractions. 
We  recommended  only  sixteen  stocks  on  that 
date,  and  you  will  see  that  every  one  of  them 
made  substantial  gains. 

Approximate    Approximate 

Price  Price 

Stock                                     Feb.  14, 1922     Mar.  31, 1922  Profit 

C.  R.  I.  &  P.  pfd  (6) 75                79  4 

C.  R.  I.  &  P.  pfd  (7) 88                93  6 

New  York  Central 76                88  12 

Pacific  Gas  &  Electric 64                68  4 

Consolidated  Gas 90              109  19 

American  Telephone  & 

Telegraph   118              121  3 

General  Motors  Deb.  (6) 70                78  8 

General  Motors  Deb.  (7) 81                91  10 

U.  S.  Steel 87                95  8 

Dome  Mines 23                26  3 

Laclede  Gas   50                63  13 

Missouri  Pacific  Pfd 48                54  6 

C.  R.  I.  &  P.  Common 33                40  7 

Am.  Smel.  &  Refining 45               53  8 

Anaconda 47                51  4 

Erie  Common  10                11  1 


Total 1005  1120  115 

Let  us  suppose  you  bought  ten  shares  of 
each  of  these  stocks  on  February  14th.  They 
would  have  cost  you  $10,050.  We  recom- 
mended 30%  margin  on  the  first  ten,  all  of 
which  were  dividend  payers;  and  50%  mar- 
gin on  the  last  six,  because  they  were  more 
speculative  and  would  have  been  more  af- 


106      SUCCESSFUL  STOCK  SPECULATION 

fected  by  a  reaction  in  the  market.  To  buy 
ten  shares  of  each  on  that  margin  basis 
would  have  required  a  little  less  than  $3,500, 
but  let  us  suppose  you  put  up  $3,500.  After 
allowing  for  buying  and  selling  commissions 
and  interest  on  the  balance  of  $6,550,  but 
crediting  you  with  dividends  paid,  your  profit 
would  be  about  32%  or  at  the  rate  of  about 
250%  per  annum. 

Of  course,  we  do  not  claim  that  by  fol- 
lowing the  conservative  course  we  advise, 
you  always  will  make  such  large  profits,  al- 
though you  might  do  just  as  well  as  that 
if  you  took  advantage  of  some  of  the  oppor- 
tunities so  frequently  to  be  found  in  the  mar- 
ket; but  keen  discrimination  in  what  you 
buy  always  is  necessary.  However,  let  us 
suppose  you  made  annual  profits  of  one-fifth 
the  above  amount,  or  50%,  which  is  easily 
possible  without  taking  the  risks  that  are 
usually  taken  in  stock  speculating.  If  you 
invested  $1000  and  made  50%  profit  per  an- 
num, reinvesting  your  profit  at  the  same  rate 
each  year  for  twenty  years,  you  would  have 
more  than  THREE  MILLION  DOLLARS. 

When  there  is  a  possibility  of  making  such 
enormous  profits  as  that  by  following  care- 


SUCCESSFUL  STOCK  SPECULATION      107 

ful  methods,  surely  there  is  no  argument  in 
favor  of  taking  the  extreme  risks  that  people 
do  take  in  buying  the  highly  speculative 
stocks,  the  prices  of  which  are  put  up  for 
the  purpose  of  unloading  them  on  the  public. 
Ten  of  the  stocks  we  selected  in  the  above 
list  were  dividend  payers,  and  while  the  other 
six  were  not,  they  were  considered  worth 
much  more  than  their  market  prices,  and 
the  list  as  a  whole  was  conceded  by  conserv- 
ative people  as  a  safe  one  to  buy. 

Very  frequently  we  are  able  to  recom- 
mend a  list  of  stocks  that  we  believe  will 
yield  equally  large  profits,  but  the  stocks  you 
should  buy  are  not  the  ones  that  are  the 
most  active  nor  the  ones  that  are  mentioned 
most  frequently  in  the  financial  news  and 
brokers'  market  letters.  The  stocks  that 
most  people  buy  are  usually  the  very  stocks 
that  should  be  left  alone.  The  stocks  you 
should  buy  are  usually  the  ones  you  hear 
very  little  about. 

There  is  only  one  SAFE  way  to  speculate, 
and  that  is  to  be  guided  by  a  knowledge  of 
the  fundamental  conditions  of  each  stock  and 
also  of  the  industries  they  represent.  There 
are  several  large  organizations  giving  infor- 


108      SUCCESSFUL  STOCK  SPECULATION 

mation  of  this  kind,  and  those  who  have  been 
guided  by  the  fundamental  statistics  issued 
by  them,  almost  invariably  have  made  money 
in  stock  speculating.  The  value  of  that  kind 
of  service  has  been  thoroughly  demonstrated 
beyond  any  question.  However,  a  subscrip- 
tion for  the  service  of  most  of  these  organi- 
zations costs  more  than  the  average  person 
can  afford  to  pay.  Usually  it  is  anywhere 
from  $100  to  $1,000  a  year. 

We  are  giving  a  service  for  the  purpose  of 
guiding  our  clients  to  successful  speculation 
for  a  fee  of  only  $25  a  year,  $15  for  six 
months,  or  $10  for  three  months.  For  this 
fee  we  tell  you  what  stocks  to  buy,  when  to 
buy,  and  when  to  sell.  We  send  you  our 
recommendations  at  least  twice  a  month,  but 
send  you  additional  Advisory  Letters  and  lists 
oftener  if  conditions  make  it  necessary.  You 
also  have  the  privilege  of  unlimited  personal 
correspondence  regarding  your  market  prob- 
lems. The  cost  of  our  Service  is  very  small, 
compared  with  what  other  reliable  organi- 
zations charge. 

Our  Service  is  based  on  the  principles  ex- 
pounded in  this  book.  We  try  to  select 
stocks  having  the  greatest  possibilities  of 


SUCCESSFUL  STOCK  SPECULATION      109 

profit  with  minimum  risk,  and  the  sample 
of  our  Service  given  in  this  Chapter  is  proof 
of  our  success. 

NATIONAL  BUREAU  OF  FINANCIAL 
INFORMATION 

395  Broadway,  New  York  City 


14  DAY  USE 

RETURN  TO  DESK  FROM  WHICH  BORROWE1 

LOAN  DEPT. 

This  book  is  due  on  the  last  date^d  below,  or 
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General  Library 

University  of  Calif orni 

Berkeley 


